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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