What is direct deposit?
Direct deposit is the deposit of electronic funds directly into a bank account rather than by physical paper check. Common uses of direct deposit include income tax, refunds, and paychecks.
Understanding direct deposit
Overall, direct deposit is a very popular payment method because it eliminates the risk of losing a physical check, as well as the need to visit a bank in person to make a deposit. Direct deposits can also reduce the risk of losing the check en route and theft.
Direct deposit allows the employee to be immediately available on his account at midnight the day before pay day. With this method, there is no waiting period for check clearing. Salaries paid by check can often take a week or more to be cleared from their account.
Direct deposit and tax refunds
Tax refunds are the annual return of excess income tax that a taxpayer has paid to the state or federal government in the past year. In the United States, most people receive income tax refunds in the first or second quarter of the year. While these refunds can be issued in the form of personal checks or US savings bonds, many are also in the form of direct deposits to the taxpayer’s bank account.
Most refunds are made within a few weeks of the date the taxpayer originally filed their annual income tax. Direct deposit is advantageous in that it allows the government to immediately make the reimbursement available to the citizen; many depend on tax refunds in their personal budgets.
Direct deposit and increased security
Direct deposit and other forms of electronic banking (e-banking) bring greater efficiency, as well as an increased risk of online security hacking. The increase in some cybersecurity measures to protect forms of banking, such as direct deposits, has been critical. Types of cybersecurity attacks against sensitive financial information include backdoor attacks (in which thieves exploit other methods of accessing a database that do not require traditional authentication), denial attacks of service (which prevent a legitimate user from accessing a system, often by entering the wrong password sufficiently once the account is locked), and direct access attacks (including bugs and viruses, which access to a system and copy its information).
Measures to increase security may include the use of a password protector and / or the choice of more complicated passwords, with a combination of letters, numbers, capital letters and special signs, to encrypt personal financial data.