Canadian organization prefer to send money as a direct deposit. Whether you’re getting your biweeky paycheque or redeeming a tax credit, such as the climate action incentive payment, direct deposit is a quick and easy way to receive money.
In fact, direct deposit is secure, so you don’t need to worry about someone intercepting the money. Direct deposits are a great option for situations where you otherwise would have sent or received a cheque.
Who oversees direct deposits in Canada?
Payments Canada, a oversees direct deposits. Payments Canada is non-profit organization involving the Bank of Canada, all official Canadian banks, and additional financial institutions. Generally speaking, Payments Canada is in charge of making sure that Canadian payment methods like direct deposit, cheques, are dependable and secure. They mediate situations.
How direct deposit works
To set up a direct deposit, you’ll need the recipient’s account number, transit number, and institution number. Don't worry! You, or the recipient, can read it off of a cheque. Also, most banks make this information easily accessible on their online banking portals.
However, some institutions require official proof of banking information. In this case, the recipient can request a void cheque from their bank. This this will display all of the necessary information.
Once the sender has the recipient’s banking information, they set up direct deposits through their bank. They can do it through the web, on the phone, or in-person, or with payroll software. Essentially, this allows them to send money directly from their bank account to the recipient’s bank account. Generally, this process takes around 2 days.
Unfortunately, you cannot send a direct deposit to your investment portfolio account. Generally, banks only allow you to link direct deposits into your chequing or savings accounts. If you want to invest the money rather than having it sit around in your chequing account, you’ll need to keep on top of your deposit dates and then transfer the funds manually.
Speeding up direct deposits
If you don’t want to wait 2 days for your direct deposit, you’re in luck. Usually, direct deposits seem to show up in the recipient’s account sooner than expected. There are a few reasons why this might happen:
Direct deposits usually take 2 days to show up in the recipient’s account even though your company deposits your paycheque on the expected date. Sherlock, you’ve stumbled onto a handy technique that lots of institutions use.
Many employers and payroll software companies take the delay into account and send your funds two days early, making the transfer seem instant on your end. While this method takes a little bit of extra work on the company’s part, it can minimize confusion and keep recipients happy.
Early direct deposit
Although it hasn’t really taken off in Canada yet, a number of American banks offer early direct deposit. This feature allows you to access your funds as soon as the bank receives the direct deposit notice. You don't need to wait for the payment to be fully approved.
Of course, early direct deposit is convenient. Who doesn’t appreciate getting their money a little bit sooner? However, it isn’t necessarily worth opening a new bank account for it, especially if you weren’t planning on opening an American account. As Canadians, we like this perk.
Take KOHO for an example. You can earn more perks and benefits when you add the direct deposit option in your account.
- KOHO is a full-service app and reloadable prepaid credit card with no hidden fees.
- Get $20 when you sign up for a free KOHO account with code HARDBACON and make your first purchase*.
Sending money via direct deposit or eTransfer
Unfortunately, people can intercept Interac eTransfers. For example, if you send the eTransfer to a compromised email account, the hacker has access to the money. Therefore, Interac eTransfers are are slightly more vulnerable than a direct deposit. However, they are still relatively safe and have lots of uses.
For example, you don’t want to share all of your banking information with someone that you don’t know. eTransfers are also much easier to set up, making them a great choice when sending money to friends after a night out. Finally, eTransfers are nearly instantaneous. The funds are available right away, while direct deposits take up to 2 days to receive. If you are in a rush, eTransfers are a more effective option.
Direct deposits have a more professional reputation and are great for paycheque deposits. Also, with direct deposits, you send money to a specific account, rather than a specific person. This is helpful when donating to a charity or paying employees. However, direct deposits take slightly longer to set up than eTransfers. Therefore, we don't recommend them for a one-off payment to friends.
Direct deposit and the CRA
However, the Tax Man is not your best friend but you still like getting money from them. If you receive tax refunds, government benefits, or other payments from the Government of Canada, you might want to set up direct deposit with the Canadian Revenue Agency. You receive your payments faster, and it eliminates any risk of losing the cheque.
The easiest and most secure way to set up direct deposit with the CRA web portal. From there, head to Account Services and then click on “Setup CRA Direct Deposit.” You can select the bank account for your direct deposit. Your settings save once you submit the form. Plus the CRA deposits all future payments with direct deposit.
If you prefer setting up direct deposit without a computer, just call the CRA at 1-800-959-8281. Before calling, ensure that you have your social insurance number and recent tax information handy. This includes all information related to your recent income taxes, benefits, and payments sent or received.
Next, you need to verify your name, address, and date of birth. Additionally, you need to provide the account number, transit number, and financial institution number of the bank account that you’d like to set up for direct deposit. Since this can be a lot of sensitive information to provide over the phone, we recommend setting up direct deposit via the web unless absolutely necessary.
FAQs about direct deposit in Canada
Still have a question or two about direct deposits in Canada? Don't worry! Check out our list of FAQs for more help.
Officially, the direct deposit process usually takes 2 days to complete. However, payroll management services and the government will generally submit the deposit a couple of days earlier than they say they will pay you, making direct deposit seem like a same-day service. Some recipients’ banks may also allow them to access funds early, cutting down on the turnaround timeframe.
Direct deposit forms are generally used to set up direct deposit payments from an employer or institution. They have fields for all of the banking information necessary, and generally also have space for additional information to be used by the administrative team. Direct deposit forms are generally used by HR or payment processing teams to ensure that they have all the information they need to send funds on time.
If you receive tax refunds, government benefits, or other payments from the Government of Canada, you can set up direct deposit with the Canadian Revenue Agency rather than always waiting for a cheque. This will allow you to receive your payments faster, and will eliminate any risk of losing the cheque.
The easiest and most secure way to set up direct deposit with the CRA is to log into their web portal via computer. From there, head to Account Services and then click on “Setup CRA Direct Deposit.” You then select the bank account that you would like your direct deposit to be linked to. Once you submit the form, your settings will be saved and future payments.
If you’d prefer to set up direct deposit without a computer, you can call the CRA at 1-800-959-8281 to get your payments sent directly to your bank account. Before calling, ensure that you have your social insurance number and recent tax information handy, including all information related to your recent income taxes, benefits, and payments sent or received. You’ll need to verify your name, address, and date of birth. Additionally, you’ll need to provide the account number, transit number, and financial institution number of the bank account you want for direct deposit.
If you’re with TD, you’ll have easy access to an automatically generated form that contains all of your direct deposit information. You can then present this form to your employer so that they can set up a direct deposit. Since the form is specifically created to facilitate direct deposit enrolment, it’s easier to identify all relevant information than it would be if you used a void cheque or some other equivalent.
To obtain a TD direct deposit form, log into their web portal. Then, click on the account which you would like to set up a direct deposit for. Once you’ve loaded the Account Activity page, click on “Direct deposit form (PDF)”. TD automatically generates a form with your account’s relevant information which you can download and send to anyone who needs the information. Since this document clearly states that it is from TD and has all relevant information, it replaces a void cheque, though exact rules and requirements may vary from institution to institution).
Sort of. In general, direct deposits can be adjusted for up to 3 days after they are sent so long as there was a mistake or fraudulent activity. If you’ve received more money than you were expecting, the recipient can correct their mistake and retrieve their funds (though you should still let them know that there was a mistake). Similarly, if you receive a direct deposit that you weren’t expecting, know that it will probably be reversed. However, you should also contact your bank in this situation—chances are that the payment was fraudulent.
Since direct deposits can be reversed or adjusted, it’s important to keep an eye on your bank account. Otherwise, your direct deposit payment may be quietly retrieved. Similarly, be aware that if you spend money that was recently deposited and then the payment is retrieved, your bank may charge you for having a negative balance. That being said, it’s relatively rare for direct deposits to be adjusted—don’t worry nonstop, just be aware of the risks.
If you have sent a direct deposit and need to get the money back, it isn’t as simple as clicking on a cancel button. Since the exact process can vary by company, you should check with your payroll software or bank for more information. However, you can expect that you’ll need to explain your reason for the adjustment to prevent fraud.
While you are understandably nervous about handing over your bank account number, the payee cannot view your balance, withdraw any funds, or access your account beyond depositing money. They can only add funds to your account.
Once the funds are deposited, the sender can adjust the amount for up to 3 days afterwards. They can request that some or all of the money be returned. Fortunately, payment adjustments are extremely rare—they should only occur when you were sent too much money in error.
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About The Author: Arthur Dubois
Passionate about personal finance and financial technology, Arthur Dubois is a writer and SEO specialist at Hardbacon. Since his arrival in Canada, he’s built his credit score from nothing.
Arthur invests in the stock market but doesn’t pay any fees because he uses National Bank Direct Brokerage online broker and Wealthsimple’s robo-advisor. He pays for his subscriptions online with his KOHO prepaid card, and uses his Tangerine credit card for most of his in-store purchases. When he buys bitcoins, it’s with the BitBuy online platform. Of course it goes without saying that he uses the Hardbacon app so that he can manage all of his finances from one convenient place.
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