In Canada, direct deposit is a popular method of payment that allows individuals to automatically receive funds as they're electronically deposited into their personal bank account.
This method is commonly used by employers sending paycheques to their employees, and by the CRA to provide benefit payments to eligible recipients.
Key Takeaways
- Direct deposit is a method of automatically sending and receiving electronic payments.
- Direct deposits are commonly used by employers paying their employees, government agencies issuing benefit payments, and financial institutions paying out dividends.
- To set it up, you'll need to fill out a direct deposit form and attach a void cheque or deposit slip.
- A direct deposit form will require your full name, address, SIN, and various pieces of personal banking information.
Where is direct deposit offered?
Including workplaces, here's a look at where direct deposits are typically offered and what kind of payments are used for:
- Workplaces: Providing payroll/paycheques
- Federal and provincial governments: Making benefit payments
- CRA: Issuing tax refunds
- Banks and financial institutions: Paying out dividends
- Property management companies/landlords: Receiving rental income
- Independent contractors: Receiving payments from contracted employees
- Individuals: Making/receiving child support payments
How does direct deposit work?
The process of creating and sending a direct deposit usually follows these steps:
- Employer asks for specific banking information: This is typically done when you're first hired and filling out the forms and paperwork required during your training or onboarding period.
- Employer sends instructions to the bank: These payroll instructions are related to Payments Canada – a nonprofit organization that oversees the clearing and settling of payments between banking institutions.
- Employer sends further instructions to their bank: A few days before payday, payment amounts and details are sent from the employer to their bank, from the bank to Payments Canada, and finally from Payments Canada to the employee's bank.
- Employee's bank receives payment instructions: The payment is processed and the employee's paycheque appears in their account.
Are there direct deposit fees?
Individuals don't have to worry about paying fees to receive direct deposits, but employers pay fees to use this payment system.
There's a one-time fee involved when the company first sets up a direct deposit with a specific bank, and a payroll processing fee is charged for each transaction that takes place. These fees vary, depending on which bank is being used and the nature of its relationship with the company.
How to set up direct deposits
Setting things up to receive direct deposits is pretty simple and only requires a few steps:
- Fill out the direct deposit form: Your employer will provide you with a form that asks for your personal banking details. All you need to do is fill in the required information, which can usually be found through your online banking portal.
- Attach a void check or deposit slip: If you have cheques on hand, it's easy to write a void cheque and attach it to your direct deposit form. But if you don't have a cheque or prefer not to use one, you can get a deposit slip from your bank. These days, you can often get them online, so a trip to the branch isn't even necessary.
- Submit the form: Pass the form and paperwork back to your employer, and they will take care of the rest.
Direct deposit forms by bank
If you'd like to use a bank form instead of a voided personal cheque, these are links to the direct deposit forms from some of Canada's most popular banks:
- BMO direct deposit form
- CIBC direct deposit information
- RBC direct deposit information
- Scotiabank direct deposit information
- TD direct deposit information
- EQ Bank direct deposit information
- Tangerine direct deposit information
- Alterna Bank direct deposit information
- Simplii Financial direct deposit information
- Motive Bank direct deposit form
How to set up direct deposit for government benefits
Setting up a direct deposit to receive your government benefits means following steps similar to those listed above, but you may also be required to provide information from your recent tax return(s). You can find more information about this on the Direct Deposit - Canada Revenue Agency webpage.
Required information to fill out a direct deposit form
Whether using a paper or electronic form, this is the information you'll need to provide when setting up direct deposit:
- Full name
- Home address
- Social Insurance Number (SIN)
- Bank name
- Bank transit number
- Bank institution number
- Bank account number
You'll also need to provide one of the following items:
- A void cheque
- A direct deposit slip from your bank
How long do direct deposits take?
While it can take a few weeks for the initial direct deposit process to be set up for a new employee, once it's been implemented, it'll typically take 1 to 3 days for the deposit to clear. Many banks deposit the funds at midnight on the assigned payday, but this can vary.
Employers usually set things up in advance so deposits clear immediately on payday.
If payday falls on a weekend or holiday, the payments are typically made on the preceding Friday.
Is direct deposit safe?
Using direct deposit to have your paycheque, benefits, or other payments sent directly to your bank account is one of the safest methods available. A physical cheque can be lost, stolen, or damaged, and getting a replacement can be difficult, expensive, and time-consuming.
But money that's automatically transferred from one account to another can't be lost or stolen. Sure, glitches can happen and the payment may be delayed, or your employer could input the wrong amount. But these are errors, not safety concerns – your funds are very safe.
As mentioned, direct deposits are managed by Payments Canada, but it does more than just manage these deposits. It has a much larger mandate as set out in the Canadian Payments Act, which includes:
- establishing and operating national systems for clearing and settling payments,
- facilitating the interaction between its systems and other systems involved in clearing and settling payments, and
- facilitating the development of new payment methods and technologies.
Can the sender see my banking info?
The information you provide to your employer, the CRA, or whoever is providing your direct deposit is protected under the Privacy Act. This means that they can't access your personal banking information, so they can't monitor your account, remove funds, or any such activity. Since you've only given authorization for them to deposit money, that's all they can do.
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$25 GeniusCash + Delicious meal choices with fresh ingredients + Front-door delivery.What happens if you change bank accounts?
If you decide to switch to another bank or simply open another bank account, you'll need to contact your employer's payroll department and update your information for direct deposits.
Sometimes, such as when a bank merger or closure occurs, your financial institution may contact your payors and inform them of the changes. You should still reach out to the payroll department to ensure the necessary updates have been made and you don't miss any payments.
The pros and cons
As with most financial decisions, there are pros and cons to using direct deposit. In this case, though, there are significantly more benefits than drawbacks.
Pros:
- Speed: Funds are deposited immediately, removing the wait for a cheque to clear.
- Security: Eliminates the risk of a cheque being lost, stolen, or damaged.
- Confidentiality: Electronic transactions reduce the chances of your personal information being shared with unwanted third parties.
- Efficiency: Saves both the payer and recipient's time, resources, and money.
- Reliability: Payments are always deposited on the agreed-upon date.
- Accessibility: Funds are available immediately.
- Accuracy: Little opportunity for human error, plus it's easier to fix mistakes with electronic records and transactions.
- Convenience: Since funds are immediately available, there's no need to visit a bank or ATM.
Cons:
- Overlooks the underbanked: Those who don't have a bank account can't take advantage of the service.
- Hacking: Electronic transactions can be targeted by hackers (although this is very rare).
- Complications: Switching banks can mean having to go through the entire direct deposit setup process all over again.
FAQ
What is a direct deposit?
A direct deposit is a method of payment used to provide paycheques to employees, make government benefit payments, send tax refunds, and more. With this method, the funds are automatically and electronically deposited on a regular schedule.
Is direct deposit a bank transfer?
Yes, a direct deposit occurs when funds are taken from one banking institution and sent to an account at another institution. As it's set up in advance, it can clear in as few as 1 to 3 days.
What do I need to fill out a CIBC direct deposit form?
A CIBC direct deposit form is similar to most others and requires information such as your full name, address, SIN, bank account number, institution number, routing number, and possibly more. A void cheque may also be required.
Should I sign up for CRA direct deposits?
Receiving direct deposits from the CRA is the fastest and easiest way to receive your income tax refunds and benefits. It's very reliable and convenient too, allowing you to know precisely which date you can expect your payment.
What should I do if I didn't get my GST direct deposit?
If a GST direct deposit doesn't occur on the expected date, you should wait and monitor your account for 10 working days after the expected payment date. At that point, you can call CRA to report it and ask questions.
What time does the CRA direct deposit payments?
Most banks deposit funds and update accounts at midnight, so you'll likely see your CRA direct deposit shortly thereafter. If you don't see it right away, don't worry – it can take a few hours for the deposit to show up.
I received a direct deposit and I don’t know who it’s from. What should I do?
If you spot a transaction like this, it's best to contact your financial institution as soon as possible and let them investigate. If it seems to be a government deposit, you should contact the department that sent the payment.
What are the benefits of direct deposit?
Direct deposits are faster, safer, more secure, and more reliable than most other forms of payment. Plus, since there's no need to use paper, direct deposits are a sustainable and environmentally friendly payment method too.
Can direct deposits be reversed?
Yes, errors made with a direct deposit can be reversed and corrected up to 3 days after the funds land in your account. If you notice a suspicious reversal in your account, contact your employer/payor and your bank.
How do you void a cheque for direct deposit?
To write a void cheque and get yourself set up for direct deposit, simply use a personal cheque and write "VOID" in pen. Be sure the word covers most of the paper, but don't cross out the account number.
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