Federal Reserve Bank of Dallas
Public Affairs Department
P.O. Box 655906
Dallas, Texas 75265-5906
DIRECT DEPOSIT: A Consumer's Guide
Trust-nowhere is it more important than in a banking
relationship. Trust is its mainstay, and electronic banking is
With this in mind, your neighborhood financial institution
has joined with others to create a system that allows
individuals to take advantage of technology that has been used
by businesses for years-the electronic deposit and transfer of
funds, commonly known as Direct Deposit.
Direct Deposit offers consumers a money-management tool
that is reliable, simple and convenient. With this system, you
delegate the task of depositing certain payments into a
designated account at your local financial institution. Your
money is then electronically deposited into that account on the
day of payment and is available for your use that day.
What makes the system work is consistent, timely
execution. Your financial institution takes great care in
handling your account, and consumer safeguards exist to ensure
accuracy. More than 30 million people trust their funds to
Direct Deposit. To begin your Direct Deposit service, contact
your financial institution.
How does Direct Deposit work?
The process is simple. The organization paying you
notifies your financial institution electronically that a
specified amount of money should be made available to you in an
account you designate. Federal Reserve Banks and financial
institutions process these electronic transactions through a
national automated clearinghouse (ACH) system.
You will receive a payment stub from the organization
paying you when your deposit is made. This stub is similar to a
deposit slip in that it indicates the date and amount of money
deposited into your account and may be used as proof of
availability of funds. However, you will not receive a payment
stub with federal recurring payments
With Direct Deposit, your funds are available for use the
morning of the payment date. If you go to your bank and deposit
your check in person, you might not have access to your funds
until the next day or longer. In addition, the confidentiality
of your payment is maintained when Direct Deposit is used
because fewer people are involved in the process of depositing
your money. Finally, there is no charge for Direct Deposit.
What payments are best suited to Direct Deposit?
Any ongoing, regularly scheduled payment is a good
candidate for Direct Deposit. Many government payments qualify,
and many employers offer it as an option for payroll checks.
Listed below are just a few of the payments available through
Dividend or Interest
Civil Service Retirement
Veterans Affairs Compensation
How do I begin Direct Deposit?
Inquire at your financial institution for information on
beginning Direct Deposit. A member of the staff will be able to
answer any questions you may have about Direct Deposit and will
help you begin your service. In the case of company payroll
payments, ask your personnel or payroll department for
What happens if my deposit is not made for some reason?
Direct Deposit is extremely reliable. Of more than 1
billion deposits made in 1992 by Direct Deposit, 99.9 percent
were processed without a hitch. Of those deposits that did
experience a problem, almost all were rectified within one day.
However, because every deposit is important to you, rules
are in place to protect your funds and credit in case of an
error. Your funds are safeguarded under the Federal Reserve
Electronic Funds Transfer Act (Regulation E), as well as
National Automated Clearing House Association (NACHA)
Under these regulations and guidelines, your financial
institution agrees to rectify any problem and make your funds
available within one day once it has been established an error
has occurred. Many financial institutions will also help
customers resolve problems that result from a bank error, such
as bounced checks, by notifying the business where the
Your financial institution must investigate the error and
quickly report the results to you. Once the investigation
confirms an error did occur, your financial institution will
rectify the situation immediately.
If the investigation indicates an error did not occur, the
financial institution must deliver to you a written explanation
of its findings within three days after concluding its
investigation. You may also request copies of the documentation
or information used in the investigation.
If the financial institution is unable to determine
whether an error occurred, or if there is a dispute concerning
the error, additional procedures exist to resolve the problem.
For more information concerning these procedures, contact the
Consumer Affairs Division at your Federal Reserve Bank.
Can I use Direct Deposit to have money withdrawn from my
In addition to receiving payments into your account
through Direct Deposit, you can electronically withdraw money
from your account to pay your bills. By authorizing a
withdrawal for a specific amount at a predetermined date each
month, you can pay your bills without having to write and mail
checks. The automated bill payment method saves you time, saves
you money on postage costs and ensures prompt payment of bills.
Benefits of Direct Deposit
- With Direct Deposit, you do not have to worry about lost or
stolen payment checks. Your payment is automatically deposited
safely into your account.
- You do not have to take the time to go to your financial
institution to deposit your check. If you are out of town, your
payment will be deposited into your account in your absence,
allowing that money to immediately begin drawing whatever
interest may apply. Many payments are sent through the mail,
losing up to 10 days of interest. Direct Deposit eliminates the
mailing period, so your payments begin drawing interest on the
day of deposit.
- Direct Deposit is easy to begin, and you may change your
financial institution, change the account receiving the Direct
Deposit or stop service by simply completing a form.
- You may have your funds deposited into one of a variety of
accounts, such as a money market account, a savings account or
a checking account, depending on your needs.
- You can be assured your funds are deposited into your
designated account on time, correctly and confidentially.
Regulation E ensures proper handling of your account.
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