Both direct deposits and wire transfers are electronic payment methods which allow customers to send or receive money directly between bank accounts. However, there’s still a wire transfer vs direct deposit debate - because the two services aren’t exactly the same. If you’re trying to figure out the difference between direct deposits and wire transfers, this guide has you covered.
New to all this? If you’re looking for an introduction to direct deposits, check out this handy guide - or take a look here for more on making a wire transfer, step by step.
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So, while there are obvious similarities between direct deposits and wire transfers, there are also striking differences.
You’ll usually find that direct deposits are used for regular payments - it’s the preferred transfer method for many employers, government agencies and even the IRS for tax refunds. That’s largely because direct deposits, once set up, are quick, cheap and easy for the sender to process. Perfect if you’re managing a company payroll - and far better for the employee than waiting for a check to clear.
You can often set up your direct deposit to be split between several accounts, which is not possible with a wire. That makes direct deposits a handy way to split a salary between different banks and credit union accounts - putting a defined amount in your checking account and a different amount in your savings account, for example.
Wire payments do usually incur a fee. Both the sender and the recipient may have to pay costs - but they’re often processed faster than alternative payment methods, making them a good option when time is more important than money. This means that wire payments are usually used when one individual or organization needs to pay another, rather than when organizations are sending out huge volumes of payments all at once. Think sending a time critical payment to cover a supplier invoice, pay for a vacation or close on a deal, rather than drawing a salary, getting paid social security or receiving a regular investment income.
Both direct deposits and wire transfers have their time and place. Let’s first take a look at the top advantages of each.
|Wire transfer||Direct deposit|
1. Usually processed very quickly
2. Ideal for one off transfers
3. Can often be arranged online
1. Cheap or free for the sender
2. Can arrive far earlier than a check
3. Safe and easy for the recipient
If you’re still wondering whether wire transfer or direct deposit is best for you, maybe mapping out some of the disadvantages will help.
Drawbacks to wire transfers include:
- Costs - both the sender and the recipient may need to pay fees, which can be steep
- Some banks don’t offer online wire transfers - you need to wait in line at your branch instead
- International wire transfers can come with extra costs at both ends, with third party charges reducing the amount the recipient ultimately gets
Drawbacks to direct deposits include:
- Direct deposits are ACH payments which take longer than wires to process
- It’ll take a little time to set up a direct deposit if you’re arranging large batches of payments, for company payroll for example
One of the reasons why direct deposits and wire transfers are so popular is because they’ve gradually replaced some of the more sketchy and inconvenient methods of getting paid - like mailing or handing over cash, or picking up and depositing a check. But direct deposits and wire transfers are not the only ways to get your money quickly and conveniently from one financial institution to another.
For example, you might choose to use a third party specialist provider to make your payment, or get a digital wallet to make online and mobile payments even easier. The best way to send or receive money really comes down to the situation. You’re probably not going to use the same tool to split a restaurant bill with a friend, and to pay a deposit on a new apartment.
Let’s take a look at a couple of specialists you might consider when making or receiving payments.
PayPal is more than just a way to shop online. You can also get a PayPal account to receive direct deposits¹, spend with a linked card, and send payments to friends, family and businesses. However, it’s important to note that while lots of PayPal’s domestic transactions are free, there are fees for many of PayPal’s more sophisticated services, which you’ll want to check out.
As an alternative to sending international wire transfers and direct deposits, check out Wise.
Wise cross border payments are typically far cheaper than regular banks, and can arrive faster too. And with a Wise multi-currency account you can pay and be paid in 50+ currencies, make global card withdrawals and get the mid-market exchange rate every time you want to switch between currencies. There are no sneaky fees or hidden markups - just low, transparent per transaction charges.
Open a Wise account for free online, and see what you can save.
Both wire transfers and direct deposits are safe. There’s no risk of a payment getting lost or stolen along the way - unlike a check or cash. You just need to make sure you have all the correct recipient details, including bank account number and routing number, to get the payment where it needs to be safely.
A wire transfer is processed immediately once it is arranged. This can mean that the money arrives pretty quickly. However, because direct deposits are usually used for regular, repeat payments, like salaries, they’re a pretty swift way of getting paid too. Unlike paychecks, you don’t have to receive your check, deposit it and wait for it to clear, which can make it far faster than traditional methods of receiving regular payments. Direct deposit payments are usually available on the same business day the sender releases them - so your payday could even come early.
All sources checked on 24 September 2021
This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.
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