What Is Split Direct Deposit?

Setting up a split direct deposit may help you establish and maintain a successful savings habit. With a split direct deposit, you can direct deposit into a savings account or investing account, while the rest goes into a checking account for everyday spending.

Let’s examine split deposits, how they work, and considerations to keep in mind.

Understanding Split Direct Deposit

Many employers offer split direct deposit, a feature that automatically divides each paycheck between multiple bank accounts. Instead of receiving your entire paycheck as a direct deposit in a single account, you can allocate portions to different accounts, such as checking, savings, or even investment accounts.

This system is particularly useful for people who want to manage their finances and reach their savings goals without manually transferring funds each payday.

How Split Deposits Work

With split direct deposit, your employer deposits specific amounts or percentages of your paycheck into different accounts. 

Can you direct deposit into a savings account? Yes. For example, you could designate 70% of your earnings to go into your checking account for day-to-day expenses, while 30% automatically goes into your savings account.

The allocations are typically set up through your employer’s payroll system. Once you configure the split, your employer will pay into your separate accounts every payday unless you change otherwise.

One key advantage is its flexibility. If you want to save a consistent amount every month or earmark funds for specific financial goals, split deposits may be an automatic and painless way to do so.

How To Set up Split Direct Deposit

Not all employers offer split direct deposit. However, if your workplace already pays via direct deposit, the first step is to ask if they’d be willing to split your paychecks. Typically, the company’s human resources office is the best department to approach about this payment method.

After inquiring about split direct deposit, your employer may give you a form to fill out with the necessary information. You’ll need to provide your account and routing numbers for the separate accounts that should receive your money.

You’ll also need to determine how to split the funds. Your employer may allow you to designate a certain percentage for each account or they may require you to specify a dollar amount to deposit into each account. 

Benefits of Splitting Your Direct Deposit

There are multiple reasons why setting up split direct deposit may be beneficial.

It May Be Helpful for Budgeting and Saving

One of the major benefits of using split direct deposit is how it aids in budgeting and saving. By setting up automatic splits, you can "pay yourself first" without even thinking about it.

For example, you can send a portion of each paycheck directly into a high-yield savings account, a retirement account, or even a separate account for significant financial goals such as buying a house or going on vacation. This eliminates the need to manually move money between accounts, making it easier to stay on track with your financial goals.

Additionally, because the money is automatically moved, you are less likely to spend it impulsively. The discipline of automatic transfers may help you accumulate savings over time, making it a powerful tool for financial growth.

It Offers Convenience and Flexibility

Using split direct deposit may also be very convenient. Once the splits are set up, the process is entirely automated. There’s no need to manually transfer money between accounts each time you get paid. This may help you save time and eliminate the possibility of forgetting to save or budget.

In addition, the flexibility of split deposits means you can tailor the allocation to fit your specific needs. For example, if you have multiple savings goals or expenses, you can set percentages for each one. This may make it easier to manage financial priorities such as paying bills, saving for retirement, and covering unexpected costs.

Strategic Approaches To Splitting Paychecks

Here are some ideas for making the most out of a split direct deposit:

• Emergency savings: Consider allocating a portion of each paycheck to an emergency  fund. Financial experts generally recommend saving three to six months’ worth of expenses to cover unexpected events like a job loss or medical bills.
• Goal-based savings: If you’re saving for multiple goals, such as a vacation, a wedding, or a down payment on a house, you may want to consider splitting your paycheck across separate accounts designated for each specific goal. This way, you can track your progress more easily. 
• Long-term investments: For those focused on long-term wealth building, allocating part of your paycheck to an investment account may help you grow your wealth over time. If you’re contributing to a 401(k) or IRA, splitting your direct deposit ensures you regularly contribute to these retirement funds.

By customizing your paycheck splits according to your goals, you may create a more organized and effective financial strategy.

Potential Downsides and Considerations

While split direct deposit offers convenience, there are a few potential downsides and things to watch out for:

• Complexity: If you have too many accounts or savings goals, keeping track of all the split deposits might become overwhelming. You’ll need to ensure that the allocated amounts are appropriate for your budget and goals, which may require regular monitoring.
• Inflexibility with emergencies: While setting up automatic deposits into savings accounts is great for building financial discipline, it may create some difficulty if you suddenly need access to all of your funds. In an emergency, depending on how those accounts are structured, you may find that having multiple accounts slows down access to liquid cash.
• Overdraft risk: If the wrong amount is allocated to your primary checking account, you could potentially run into overdraft issues if that account doesn’t have enough money to cover regular expenses such as bills or rent.

Frequently Asked Questions about Split Direct Deposit

Here are answers to some common questions about split direct deposit:

Can You Have Two Direct Deposits at The Same Time?

Yes, many payroll systems allow you to set up multiple direct deposit accounts. This means that you can have your paycheck split between two or more accounts based on your preferences. You can specify how much of your paycheck goes into each account by percentage or dollar amount. For instance, you might want 80% to go into your checking account for daily expenses and 20% to go into your savings for long-term goals.

How Should I Split My Paychecks?

How you split your paycheck depends on your financial situation and goals. A common approach is to use one portion to cover essential living expenses (such as rent, utilities, and groceries) while allocating another portion for savings and debt repayment.

Some people also divide their paychecks into separate accounts for specific savings goals such as vacations, education, or retirement. A good rule of thumb is to use a budgeting framework like the 50/30/20 rule. With this strategy, you allocate 50% for needs, 30% for wants, and 20% for savings and debt repayment.

The Bottom Line

By incorporating split direct deposit into your financial planning, you may automate your savings, organize your budget more effectively, and reach your financial goals faster. However, it’s important to consider the potential downsides and ensure the system aligns with your lifestyle and objectives. If set up wisely, split direct deposit may be a powerful tool to help you save.