While there are many advantages to having direct deposit into an account, there are still people who are wary of this type of banking transaction. These people can point to several reasons for not wanting direct deposit. Both employees and employers can have varying rationale for using a check or cash payment system other than direct deposit. Most reasons revolved around limitations imposed upon the money, accounts or accessibility.
One of the initial reasons given for not wanting the option of direct deposit is the absence of a bank account. Most often, the use of direct deposit requires a checking account. Obtaining a checking account often requires resources that not every employee may have available. There is the initial deposit of funds to open the account; a photo ID is also required with current address and information; a secondary source to confirm your current address such as utility bills may also be needed. While a paycheck can be used to fund the initial deposit, most times the bank will hold the entire paycheck, which requires the new account holder to lose access to that money until the check clears the bank.
Another of the reasons for not wanting direct deposit is the paperwork and time needed to switch accounts. If an employee is wanting to switch banks or bank accounts, then the employee must submit a new application for direct deposit with their employer. The time to redirect a direct deposit is the same amount of time to set up an initial order for direct deposit. Employers may only deal with select banks, which minimizes the options available to employees; this requirement forces the employee to adhere to the bank guidelines, account rules and fees.
Local vs Foreign Banks
Traveling employees have various reasons to not want direct deposit. One of the main reasons is the bank which handles the deposits is often considered a "foreign bank" by other banks. This designation means that to access funds, employees who travel regionally or nationally may find problems writing checks, or incur fees attempting to access funds through ATM machines because their bank doesn’t maintain a network in the community. Because of this designation, further identification may be required to obtain cash from the bank account where funds are deposited.
Gaining Access to Needed Funds
A related issue adding to the reasons already mentioned for not wanting direct deposit is the inability to locate an ATM. Banks do issue check cards, connected with the checking account to alleviate this problem, although many banking customers maintain accounts with only ATM cards to access funds. There is also the requirement of many banks to distribute funds in $20 increments only, which can cause possible overdraft or minimum balance issues.
There are also various reasons given by employers for not wanting direct deposit as an option. Each employee will need access to a bank account where funds can be sent, usually in their name. Employees may not be working in areas covered by the employer’s bank, which can cause additional restrictions or fees when attempting to cash checks; or where ATM machines are not easily accessible to get their paychecks via bank cards. Employees may resist giving out personal banking information, such as account numbers and routing information, because of the fear of identity theft. The initial paperwork required to set up this option for each employee can be time consuming for larger employers. Funds are moved instantly from the employer’s account to the employee’s account, eliminating the potential interest these funds could yield employers while waiting for paychecks to clear a bank; there is also the potential for funding issues should the employer be unable to cover payroll.
Many people see a multitude of benefits when asked about direct deposit. There are still many people who find the regulations and stipulations of direct deposit would be more problematic than beneficial. People who lack credit and bank accounts, traveling workers, homeworkers, people who live paycheck to paycheck, and others who cannot afford to have money tied up in banks or accounts to pay bills are among the latter group.
Bluegrass Community and Technical College
Commonwealth of Kentucky