Search
  1. Home
  2. Banking
  3. How Direct Deposit Works and How to Set It Up in Canada
Published June 28, 2021
Updated July 15, 2021

How Direct Deposit Works and How to Set It Up in Canada

Setting up direct deposit is usually fairly simple. First, you need a direct deposit form. Fill out your account info, attach a void cheque or deposit slip, and then submit it to your manager or payroll department.

When you have a job, the easiest way to get paid is usually via direct deposit. It’s a fast, convenient alternative to waiting for a paper cheque to arrive in the mail, and it requires no work on your end after the initial setup. When the money arrives in your bank account, you’ll be able to access it right away without any delays.

In addition to your paycheque, you can receive many types of payments through direct deposit: your tax refund, government benefits and other payments such as employment insurance (EI). While there’s no denying how useful direct deposit is, have you ever wondered how it works? Here’s what you need to know about direct deposit.

How direct deposit works

Direct deposit in Canada uses an electronic payment system to transfer funds between businesses and individuals. This system has detailed rules and procedures to ensure your money ends up in the right place — a lot is going on behind the scenes.

There are two main payment systems in Canada: Large Value Transfer System (LVTS) and Automated Clearing Settlement System (ACSS). LVTS mainly handles large-value payments that are time-sensitive. ACSS is used for retail payments, which include pre-authorized debit and point-of-sale transactions.

But all you really need to know is that direct deposit allows you to be paid electronically, which is usually more convenient than getting paid in cash or with a paper cheque.

How to set up direct deposit

In most cases, the easiest way to set up direct deposit is to provide the person paying you with a void cheque that shows all your banking details. If you don’t have any cheques, you can ask your financial institution for a printout of your direct deposit information.

Some employers require you to fill out a paper or electronic form with your direct deposit information. Here’s what you may need to provide:

  • Your account info (bank name, transit number, institution number, and account number)
  • A void cheque or deposit information page

Once you submit that information to your manager or payroll department, you’re good to go. Your payroll department will ensure that you’re paid the right amount on time. If you decide to switch banks or want your money to be deposited into a new bank account, you’ll need to update your direct deposit information.

Pros and cons of direct deposit

Even though direct deposit is pretty seamless, you still need to be aware of some pros and cons.

Pros of direct deposit

  • Funds arrive immediately with no holds
  • Reduced risk of fraud and theft
  • Minimal environmental impact
  • You can receive the money in your bank account or sometimes onto a prepaid credit card

Cons of direct deposit

  • Can be a hassle to update if you change bank accounts
  • Can be delayed in rare cases
  • If you need cash, you need to get it from an automated teller machine (ATM)

Are there any fees associated with direct deposits?

Yes and no. You don’t pay any fees to receive your money, such as your paycheque from your employer. However, your employer will often need to pay a fee to send the money to you.

A common form of direct deposit that’s used between regular people is the Interac e-Transfer. Depending on your financial institution, you may be charged a fee when you send an e-Transfer, or your bank account may include a certain number of free e-Transfers.

Wire transfers are similar to direct deposits, and they often come with fees for both the sender and receiver.

Can the sender see my banking information?

The information you provide for direct deposits is protected under the Privacy Act. That means your employer and the government can’t monitor your bank account, nor can they withdraw money from it.

Using direct deposit is a safe and convenient way to get paid. The information you provide to the organization paying you can’t be used to harm you.

About the Author

Barry Choi
Barry Choi

Barry Choi is a personal finance and travel expert. His website moneywehave.com is one of Canada's most trusted sites when it comes to all things related to money and travel. You can reach him on Twitter: @barrychoi.

DIVE EVEN DEEPER

How Direct Deposit Works and How to Set It Up in Canada

Getting paid by direct deposit is fast and easy. It’s a secure way to get your paycheque, tax refund, government benefits, and employment insurance.

Overdraft and Overdraft Protection Explained

An overdraft drops your bank account balance below zero and can result in fees and interest. Overdraft protection prevents a non-sufficient funds fee.

What Is a Bank Statement?

A bank statement is a summary of your account activity during a set time period. Check your statement for errors, fees, suspicious transactions and interest earned.

What is a Chequing Account? How Do I Use One?

A chequing account is a bank account for everyday expenses, day-to-day transactions, withdrawals and deposits. They are “transactional” accounts.