In banking, a direct deposit (or direct credit) is a deposit of money by a payer directly into a payee's bank account. Direct deposits are most commonly made by businesses in the payment of salaries and wages and for the payment of suppliers' accounts, but the facility can be used for payments for any purpose, such payment of taxes and other government charges. Direct deposits are most commonly made by means of electronic funds transfers effected using online banking systems, but can also be effected by the physical deposit of money into the payee's bank account.
When making a direct deposit by means of electronic funds transfer, the payer would also enter reference information to enable the payee to easily recognise who made the deposit and which account to credit. The reference may be an account number, an invoice number, the payer's name or some other meaningful identification. To ensure that the payee is aware of the deposit, the payer would commonly follow up by sending to the payee a remittance advice.
The direct deposit or direct credit facility is often better known by country specific payment systems used to action these payments, for example:
- Giro in most of Europe
- Automated Clearing House (ACH) in the United States
- Direct Entry in Australia
Alternatives to direct deposit
The U.S. federal government and some employers provide alternative electronic payment options to recipients and employees. One alternative method is a prepaid debit card.
A U.S. federal law of 1996 required the federal government to make electronic payments such as direct deposit available by 1999. As a part of its implementation, the U.S. Treasury Department in 2008 paired with Comerica Bank and MasterCard to offer the Direct Express Debit MasterCard prepaid debit card. The card is used to make payments to federal benefit recipients who do not have a bank account.
- "Federal government chooses direct deposit and prepaid cards over mailing checks", BankCreditNews, 15 April 2013, accessed 22 April 2013.