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Social Security Payments Transitioning to Direct Deposit

Written by Nickel - 23 Comments

Social Security Payments Transitioning to Direct Deposit

Guess what? Starting next year, Social Security recipients as well as those receiving veterans’ benefits, railroad pensions, and federal disability payments will no longer receive physical checks sent through the mail. Instead, the government will only issue electronic payments.

In general, this means direct deposit to a bank account, though debit cards will be available for the unbanked. For the time being, tax refunds will be exempt from this requirement, though the IRS has been pushing direct deposit for quite some time.

As it turns out, 90% of these payments are already made electronically, but still… Making the remaining 10% of these payments (7.3M per month) represents should save the feds a significant chunk of change.

The changeover is expected to be complete by March 2013, at which point the USPS will have even less business (and greater losses) than it does right now.

All in all, I see this move as a good thing. It’s significantly cheaper — the estimated cost savings is $120M/year — and avoids the possibility of checks being lost or stolen. The primary downside is for those without bank accounts, as they could wind up facing ATM fees to access the money on their debit cards.

What do you think? Is this a good move?

Published on April 20th, 2012
Modified on April 27th, 2012 - 23 Comments
Filed under: Banking, Retirement

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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23 Responses to “Social Security Payments Transitioning to Direct Deposit”

  1. 1
    Melissa@LittleHouseInTheValley Says:

    This seems like a good move as long as all of the seniors have bank accounts (which most should). The government needs to find as many ways to save money as possible.

  2. 2
    Courtney Says:

    Can’t you get free checking with direct deposit most places? I really don’t see this as a major hurdle.

  3. 3
    Jonathan Says:

    I agree with Courtney. I don’t think this is a big issue. Perhaps, they could use a small bit of the savings on an educational mailer to those involved to educate them on the availability.

  4. 4
    Frank J Lepiane Says:

    Should also read ‘or Credit Union’ account!

  5. 5
    Flo Bradley Says:

    This is an excellent idea. The Post Office needs to scale itself down and live within it’s means. If the income is down then the overhead has to go down. Most of their deliveries are junk mail anyway.

  6. 6
    Donna Says:

    Courtney, Jon, and others: I’m actually thinking that this may be challenging for the remaining 10%. They’re still receiving checks for a reason. There are many people who have mental health related reasons for not trusting banks; getting a checking account can be a huge obstacle for those people (imagine any other phobia or adamant belief you can relate to). Also, a chunk of the population who get these payments have had accounts in the past, and have defaulted and now owe money to banks, and would have a hard time finding a bank that they’re near to. This is a change that supports the President’s accountable/efficient government initiates, so it is a step in the right direction, but it may well be a challenge to the vulnerable people it impacts.

  7. 7
    Donna Says:

    I am glad that this will further impact the USPS; I’m looking towards the day that we move away from mail as an institution. I think we’ve reached that point in our society where hard copy mail can small-scale and privatized.

  8. 8
    Anonymous Says:

    NO–I don’t think this is a good idea. If you have ever been harmed by a bank by being turned over to ChexSystems, EWS or that other bad agency, you will not get an account unless the Feds force these 3 bad credit type agencies out of business. Good luck to such folks who have been reported!!

  9. 9
    Donna Says:

    Comment #8 – The debit card option is what makes this change work for those folks who are “blacklisted.” Perhaps they can incorporate DSHS cash and food stamp benefits and government payments into a single non-descript debit card? I’m seeing the technology work on the flex plan benefit cards (Benny Cards).

  10. 10
    Coney Island Eddie Says:

    Smartest thing the govt. can do. It will eliminate the stealing of checks along with the false claims of never receiving them. Let’s not forget the postage costs. Another knife in the back to the USPS.

  11. 11
    Coney Island Eddie Says:

    Smartest thing the govt. can do. It will eliminate the stealing of checks along with the false claims of never receiving them. Let’s not forget the postage costs. Another knife in the back of the USPS.

  12. 12
    Hemant Ravi Says:

    Yes, I do support Courtney and it is not a big issue to raise storm over. Payments directly going towards bank account is a good idea. Nowadays almost 90% of the transaction including international money transfer is done electronically.

  13. 13
    Brian Anderson Says:

    Very interesting and I think this is probably a good move for the government. What I don’t understand is how this would save $120M/year. If only 10% of these payments, or $7.3M/month, are being sent through mail how would the savings be more than the total payments per year? This doesn’t seem logical to me but either way I’m sure it will save a considerable amount.

    The impact to the USPS is another interesting point. With well over 500,000 people currently employed by the USPS, the implications are significant. It’s a natural transition away from hard copy mail and for an institution that’s losing 5 billion in net income every year, this is sure to make things more challenging.

  14. 14
    Donna Says:

    Brian A. – The $120 million includes non-value add “soft costs,” as well as general overhead.

  15. 15
    Joe Bleaux Says:

    The fact that 10% of SS recipients still receive checks demonstrates that financial education in the US is woefully insufficient. Direct Deposit is safer, cheaper, and more convenient in every way. Everyone needs a bank account and minimal financial acumen. I’m glad to see the USG dragging people, kicking and screaming, into the 21st century.

  16. 16
    Joe Bleaux Says:

    The fact that 10% of SS recipients still receive checks demonstrates that financial education in the US is woefully insufficient. Direct Deposit is safer, cheaper, and more convenient in every way. Everyone needs a bank account and some minimum of financial acumen. I’m glad to see the USG dragging people, kicking and screaming, into the 21st century.

  17. 17
    TTFK Says:

    Joe, does that mean you are also glad that some of these people, once they start getting their money by direct deposit, will have NO money left to live on whatsoever?

    If someone is on SS but still owes debts that are able to be garnished, their entire SS payment will be snatched up the moment it hits a bank account. This is why some people WANT a check, so they can cash it and actually be able to eat as opposed to being in a homeless shelter and lining up at soup kitchens.

    Welcome to the law of unintended consequences.

  18. 18
    bArrY Says:

    Bull crap alert!! In case you think Congress is looking out for your best interest with this direct deposit requirement crap…think again! PLEASE RESEARCH BILL “HR 4646″ to know the REAL reason for this!!! Read entire explanation. Watch for this AFTER November elections; remember this BEFORE you VOTE. A 1% TAX on ALL bank transactions is what HR 4646 calls for! Do you receive a retirement check from Social Security or a pension fund and have it direct deposit?? Well guess what … It looks as if Congress wants to tax it 1% !!!This bill was put forth by Rep. Chaka Fattah (D-PA).
    YES, that is 1% tax on all bank transactions – HR 4646, every time it goes in and every time money goes out.

    Ask your congressperson to vote NO.
    FORWARD THIS TO EVERYONE YOU KNOW!

    1% tax on all bank transactions ~ HR 4646 – ANOTHER NEW Federal TAX SLIPPED IN WHILE WE WERE ASLEEP. Checked this on snopes, it’s true!
    Check it out yourself ~ HR 4646.
    The finance team is recommending a one percent (1%) transaction fee (TAX). Their plan is to sneak it in after the November elections to keep it under the radar. This is a 1% tax on all transactions at any financial institution – banks, credit unions, savings and loans, etc. Any deposit you make, or even a transfer within your own bank from one account to another, will have a 1% tax charged. If your paycheck or your Social Security or whatever is direct deposit, it will get a 1% tax charged for the transaction.
    If your paycheck is $1000, then you will pay $10 just for the privilege of depositing your paycheck in your bank. Even if you hand carry your paycheck or any check in to your bank for a deposit, 1% tax will be charged.

    You receive a $5,000 stock dividend from your broker, The Feds take $50 just to allow you to deposit that check in the bank.
    If you take $1,000 cash to deposit at your bank, 1% tax will be charged.
    Mind you, this is from the Govt. that promised, if you make under $250,000 per year, you will not see one penny of new tax. Keep your eyes and ears open, you will be amazed at what you learn about these under-the-table moves to increase the number of ways you are taxed.
    Oh, and by the way, if you receive a refund from the IRS next year and you have it direct deposited or you walk in to deposit that check, you guessed it. You will pay a 1% charge of that money just for putting it in your bank.. Remember, any money, cash, check or whatever, no matter where it came from, you will pay a 1% fee if you put it in the bank.
    Some will say, oh well, it’s just 1%. Are you kidding me? It’s a 1% tax increase across the board. Remember, once the tax is there, they can also raise it at will. And if anyone protests, they will just say, “Oh,that’s not really a tax, it’s a user fee”!
    Think this is no big deal? Go back and look at the transactions you made from last year’s banking statements. Then add the total of all those transactions and deduct 1%. Still think it’s no big deal?

  19. 19
    Donna Says:

    This is an great idea; I wish it had more support! The goal is to get rid of income tax, and to have this fee for only a 7 year period. The bill comes with a tax credit of 1% of gross income. There is discretion within the bill to structure it so that low-income folks don’t disproportionately pay; there’s talk of amending the bill to exempt transactions below $500.

    The bill has flaws, but nothing substantial, and much of it is likely to be addressed.

  20. 20
    SPIKE Says:

    Barry needs to do some fact checking…………..all is FALSE! The bill had no co-sponsors, and never cleared committee to be voted on no matter how many times and ways it was introduced by Chaka Fattah. Please do your homework.

  21. 21
    hennypenny Says:

    I’m guessing Barry drinks tea. And why do people pick on the Post Office? They’re just doing a needed job without being in debt so people can get their mail. I direct deposit. No waiting through wknds for money. Someone mentioned garnishing SS accounts for debts. I don’t think that’s legal. Last I knew SS funds canot be taken in law suits or by bill collectors.

  22. 22
    fch Says:

    The question I have is where are these coming from? stated from above is the estimated cost savings is $120M/year — and avoids the possibility of checks being lost or stolen. This information came from where?What about deposits not making into the accounts? Who With China hacking the banks, etc., this is to me weak minds in action. Time for a change, across the board.
    fch

  23. 23
    richard cerio Says:

    This is a bad idea. Direct deposit is the biggest rip-off.The banks make you put your money on a card. You cannot go into the bank and request to withdraw all the money on the card. You must use the card every where you go. My landlord will not accept the card. He wants a money order. The bank charges $10 for a money order. When you call every month to make sure money is on the card, it is not. The bank tells you, call social security. Social security says call the bank.

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