PALM BEACH GARDENS, Fla. — Want to increase your savings account balance by 30 percent? Sign up for automatic direct deposit, says Nacha, the electronic payments network, in Herndon, Va. You'll save more than if you manually deposit checks or cash, according to a recent telephone poll of 1,505 persons by TRC, Philadelphia.
People who use direct deposit save $390 monthly — $90 more than those who save manually, based on the Nacha-commissioned poll. Tack on a 6 percent rate of return and direct depositors could save an additional $22,857 over 10 years, Nacha says. The reason: Saving is easier.
You often can arrange direct deposit of a portion of your pay into a savings or investment account on the job. Just give your employer a voided check or an account number off your checking account statement.
In fact, some employers will let you direct deposit money into more than one account, notes Elliott C. McEntee, Nacha CEO.
Can't do this through your employer? You still can authorize your bank, mutual fund or insurance company to regularly debit your account.
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Today, via "electronic check conversion," some merchants and most major credit-card issuers electronically debit your account — even though you mail a check. The payment appears as a "debit" on your account statement. Some 90 percent of Social Security recipients get checks by direct deposit, according to Nacha, which saves our government 80 cents per payment.
You even can use the Nacha network to make telephone or online purchases. Key in your account number online or provide it over the phone.
By taking advantage of direct deposit through your employer, McEntee says your risk is minimal. That's because you're only authorizing money to go into your checking or investment account — not out of it.
Security can be an issue
But other uses of electronic transfers, though hailed as speedy money savers, have triggered security questions.
Consumer advocates have expressed worries about your check once a merchant converts it to an electronic debit. What happens to the check afterward? You need to consider the trustworthiness of the merchant, once it has your checking account number. If you later need a copy of your check for legal reasons, you may only be able to get a check's image.
Watch out if you pay a credit card, or any other bill, with a check from a savings or money-market account. A surprise automatic debit inadvertently could trigger fees or an account closure for exceeding monthly account transaction limits. And consumers mistakenly have considered a purchase free after merchants, debiting their accounts, return the check. Failure to log the debit into a checkbook register could lead to steep bounced check fees.
Come March 16, McEntee says, consumer confusion can be minimized as merchants start participating in Nacha's "Back-Office Conversion." Merchants converting checks to electronic payments no longer will return checks to customers. The physical check will be destroyed and the merchant or the merchant's bank will keep an electronic image of the check. "We expect thousands of merchants to start utilizing this between March and the end of the year," McEntee says.
Concern about difficulty prosecuting a criminal when a check is converted into an electronic payment is ebbing too, he says. "A number of states have updated criminal statutes. Whether it's done electronically or through the check system, it's just as easy to prosecute the case."
Besides being more costly to process, a paper check is riskier than an electronic one because it's easier to alter the amount, McEntee maintains. Fraud rings have retrieved checks from mailboxes, and changed payee names.
Tips to avoid trouble
So what should you do to protect yourself if you use any type of electronic transaction that goes through Nacha? Don't give your checking account information to anybody you don't know, McEntee stresses.
- Examine all account statements carefully for unauthorized debits. Under federal rules, you must notify your financial institution within 60 days after the statement containing the problem or error was sent. Make sure you follow up in writing and keep a copy of your letter.
- Ask your financial institution to reverse any charges due to excess transaction fees on a money-market account check you did not realize would be converted to a debit.
Besides federal protections, Nacha has its own rules if you have an error or unauthorized debit.
"If your bank doesn't respond, that would surprise me because they could be (financially) penalized by us," he said. "Go to a branch manager or customer service supervisor."
