What It Is:
Direct deposit refers to the electronic transfer of a cash payment into the recipient's bank account.
How It Works/Example:
Direct deposit is a method of payment where a paying party, such as an employer or government agency, electronically transfers a payment in cash from its bank account into the bank account of the payee. Salaries and tax refunds are examples of payments commonly made through direct deposit.
Why It Matters:
Directly deposited money "clears" automatically, that is, it is immediately available for withdrawal, and does away with the need for and inconvenience of a paper check.