DEFINITION of 'Direct Deposit'

Electronic funds that are deposited directly into your bank account rather than through a paper check. Common uses of a direct deposit include income tax refunds and pay checks.

BREAKING DOWN 'Direct Deposit'

As a whole, direct deposit is the most popular form of payment as it eliminates the risk of losing a check and eliminates the need to physically visit a bank to make a deposit.

Direct deposit allows an employee's pay to be immediately available in their accounts at midnight the day before pay day and it is not subject to a check clearing wait period. Salaries paid via check can take a week or more to clear within their account.

Direct deposits are also popular for income tax refunds, as it is the fastest method of payment.

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RELATED FAQS
  1. What is the difference between a demand deposit and a term deposit?

    Understand the meaning of demand deposits and term deposits, and learn about the major differences between these two types ... Read Answer >>
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    Learn about the different types of accounts designated as demand deposit accounts, such as savings accounts and money market ... Read Answer >>
  3. What are the Federal Reserve's guidelines on demand deposit accounts?

    Read about some of the Federal Reserve's requirements and guidelines regarding the treatment, safeguarding and processing ... Read Answer >>
  4. How long does it take a check to clear?

    It usually takes two days for a check to clear, but in some cases it may take longer. Discover how banks treat large deposits ... Read Answer >>
  5. When should my tax refund arrive?

    Read about how long it takes the IRS to process your income tax return and what factors could delay receiving your tax refund. Read Answer >>
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