Advantages & Disadvantages of Electronic Paycheck Bank Deposits

Electronic paycheck bank deposits are also known as direct deposit. In electronic deposits, paper checks are replaced by employers depositing earnings directly into an employee's bank account by payday. Three out of four working Americans who have direct deposit available for their pay have chosen to use it, according to the Credit Union National Association. Careful consideration of the pros and cons can help you decide if direct deposit is right for you.

The main reason people sign up for direct deposit is convenience. When receiving your paycheck electronically, you don't need to make a trip to the bank to cash or deposit your check. Also, if you're out sick or on vacation, you don't have to make special arrangements to pick up your paycheck. Direct deposit eliminates the need for paper checks, so you don't need to worry about lost or stolen ones. With direct deposit, your earnings are deposited into your account at the same time each pay period. You won't have to wait until you go to the bank to get your money.

While at the bank to deposit a paper check, you may be tempted to make a withdrawal. With direct deposit, the money stays in your account until you need it. Direct deposit also allows you to select amounts to be distributed to both your checking and savings accounts, making it easier to save money.

One of the disadvantages of direct deposit is the paperwork that must be completed to enroll. Your employer likely has a standard form you must fill out, asking for the name of your bank, your account number and your bank's routing number. You will also be asked to attach a voided check. If you change banks, close your account or want to go back to paper checks, more paperwork is needed to cancel the agreement. Paperwork processing time may cause you to keep an account open longer than you'd like, while you wait for the direct deposit authorization to be canceled.

Once you decide to participate in direct deposit and complete the paperwork, the transaction doesn't happen immediately. Your employer first performs a pre-notification on your account, a test process that happens before the actual electronic deposit transaction. Because of this, it may take one or two pay periods for your first direct deposit to occur. Confusion over when the money will be in your account could be costly. If you start writing checks before the electronic transfer happens and don't have enough money in your account to cover your expenses, your bank could hit you with fees.