What is a direct debit?

Key takeaways

• A direct debit is a secure, automated payment method that allows a business or service to take money from your bank account on a set date which is useful for regular payments like subscriptions and bills

• If a direct debit payment is incorrect, your bank will refund you immediately, however, standing orders are fixed payments set up directly with your bank and do not offer the same protection

• You can schedule direct debits for various frequencies, such as monthly, weekly, or annually, depending on your agreement with the company

• There is the risk of overdraft fees if you don’t have enough funds and the possibility of forgetting about the payments

What is a direct debit?

A direct debit is a secure, automated payment method that gives permission for a business or service to take money from your bank account on a set date.

It’s a useful and efficient way of making regular payments, such as subscriptions and memberships.

These payments can be variable or fixed amounts, making them convenient for paying bills where you’re charged based on usage.

How do direct debits work?

You need to contact the company you’re paying to set up a direct debit. Once you’ve completed a form giving permission for them to take payments from your account, the company will then set it up with your bank.

The direct debit will leave your account on the date you’ve agreed on. Payments will occur like clockwork, until you decide to cancel.

How do I set up a direct debit?

As a direct debit is an agreed transaction between you and a company, you’ll need to get in touch with them to set it up. You can do this online, by phone, or through the post. Some companies may give you the opportunity to do so when you create an account with them - such as energy providers.

They’ll ask you to provide your bank account number and sort code, as well as the date you want the direct debit to be taken. They may also ask you to complete a form to give them permission to collect the payment directly from your account.

The organisation will then send the direct debit instruction to your bank or building society, so they can start collecting payments on the agreed date.

How is a direct debit different from a standing order?

Both direct debits and standing orders let you automate regular payments from your bank account to a person or company. However, there are some differences between these two payment methods.

With a standing order, you set up a fixed, regular payment with your bank to pay a person or organisation. This could be rent payments or moving money from your current account to a savings account. You set up a standing order by directly telling your bank.

Direct debits offer much more protection than standing orders. In the event of an incorrect direct debit payment, your bank will refund you immediately. In contrast, standing orders aren’t protected at all – once the payment has been sent, you can’t get it back.

What happens to my direct debits when I switch bank accounts?

Thanks to the Current Account Switch Service, your direct debits will be transferred over to your new account – you won’t have to do anything at all.

How often can I schedule direct debit payments?

With direct debits, you can schedule them for a date that suits you. This is often the same date every month. But you also have the option to set up weekly, quarterly or annual payments, or as and when they’re needed – you just need to have agreed on it with the company you’re paying.

Bear in mind that if a payment is due to be taken on a date that falls at a weekend or on a Bank Holiday, it will be collected the next working day. If there’s a change of date, the company you’ve set up the direct debit with will tell you in advance.

What are the pros and cons of setting up direct debits?

Pros

• Quick and convenient – As direct debits are automatically taken from your account, you won’t have to manually make these payments every month – saving you time and effort

• Secure method of payment – Thanks to The Direct Debit Guarantee, all banks offer protection for direct debit payments. This means any incorrect payments will be refunded back to you

Cons

• Risk of being overdrawn – There’s a chance you’ll have to pay an unpaid transaction fee or overdraft interest if you don’t have enough money in your account to cover the payment

• Easy to forget – While direct debits mean you’ll never miss a bill, you might also forget about it entirely. It’s important to check your bank account regularly to ensure they’re being taken as expected, and to cancel any you no longer need

How do I cancel or amend a direct debit once it’s set up?

You can cancel a direct debit any time you want. You can contact your bank or building society and tell them, or cancel via your online account or banking app.

As long as you cancel it at least one full day before the direct debit is due, you’ll be refunded for the payment if it’s taken from your account. To be on the safe side, it’s best to check with your bank to see how much notice you need to give.

Once you’ve cancelled a direct debit, you should let the company know. Otherwise, they may think there’s been a mistake and set up the payment again.

If you want to change a direct debit – whether that’s the amount you’re paying, or the date of payment – you should get in touch with the company you’re paying.