How safe are direct debits?

Harriet Meyer / 21 February 2018 ( 03 March 2020 )

Direct debits are a convenient way to make regular, fixed payments - but how safe are they? Here we share some direct debit safety tips and debunk a few common direct debit myths.



Paying utility and financial services firms by direct debit gives you peace of mind that you won’t miss a payment.

Signing up to this system gives a firm authority to take payments from your account to meet regular, fixed payments. Energy, mobile phone and plenty of other bills are met this way – but how safe is this option?

After all, we are bombarded by warnings to be wary of handing over our bank details. Or you may fear a firm taking money that is not due to them. To reduce any worry, there are several safeguards in place.

Direct debit guarantee

The direct debit guarantee ensures that your bank will refund any disputed questions without any hassle, and pending any further investigations. Any firm signed up to the system is also vetted and approved – once approved, it must give indemnity guarantees through their bank. This enables you to reclaim money in the event of any dispute.

If you want to cancel a direct debit, you can do so automatically by contacting your bank and notifying the firm. You may need to provide written confirmation.

There are plenty of other advantages to paying by direct debit. Here are some of them:

Discounts

Many firms will offer discounts to customers paying this way. The cheapest energy tariffs, for example, are often only available to people paying by direct debit. Some companies will even impose additional charges if you don’t pay by direct debit.

You can spread the cost of bills using direct debit and save time sorting them out as it’s done automatically. However, it’s worth checking if you’d be better off paying in a lump sum. Occasionally - such as in the case of car or home insurance - you may pay more over time than paying in one lump sum.


Financial control

As payments are taken automatically from your account you may feel more in control of your finances. You will also be certain that you won’t fall behind, which can easily happen if stacks of bills pile up over time. You will never be late with payment, provided the direct debit is set up properly – so check that payment is being taken.

Many companies will let you choose the payment date, so you can set up your direct debit to be paid at a time that suits you – perhaps just after pay day, when you know there will be funds in your bank account and you are in no danger of going overdrawn.

Some people worry that by setting up payments to be made automatically, they lose control and companies could take as much money as they want, when they want. This is not the case. You have to be notified in advance – usually 10 working days – of any changes to the amount to be paid or payment date.

Budgeting

As the same amount is taken each time, you will be able to tot up how much your household bills are costing you easily.

Essentially, ask if there are any discounts for paying this way, and be assured that you’re protected if anything goes wrong.

Common direct debit myths

Consumers often sign up to pay regular bills by direct debit – but many people fear the process could penalise them.

Here we bust five myths and misconceptions around this automatic payment method:

1. Firms can take money whenever

Payments by direct debit are taken automatically from your bank account on the due date – but this doesn’t mean firms can take money whenever they want.

In fact, companies have to give advance notice if they want to change the date. The process simply means you will never be late with payment, assuming no glitches. This can prove beneficial – as it means you can’t forget to pay a bill.

Of course, it’s also wise to regularly monitor your direct debits. If you are paying for services you don’t use, cancel them.

2. My money could vanish

Any company you have supplied your account details to cannot raid your account. You have to be given notice of any changes to the sum being taken.

Direct debits are very different from continuing payment authorities (CRAs). These allow companies to take money whenever they think they are owed a sum, and are often used by subscription services. If you are paying this way, try switching to direct debit.

3. It’s not safe to pay this way

Actually, direct debits protect consumers. Before a company can offer this as a payment option, it goes through a vetting process. Their processes are monitored by the banking industry.

Payments are protected by your bank. It will guarantee to return your money if there is an error in the process.

4. I will lose control of my account

You have a right to tell your bank to cancel direct debit payments any time you like. The majority enable customers to action this through their online banking systems.

If there’s an error in the amount that’s been taken from your account, you can get a full refund from the bank, rather than the company itself.

However, if you’re in a contract check the terms carefully. Notice may be required, and you may face a penalty for early cancellation.

5. It’s more expensive

In fact, many utility and financial firms offer discounts if you pay this way – or the option to avoid additional charges. The cheapest energy tariffs are often only available customers paying by direct debit. Phone providers often add charges for not paying by direct debit.

But it doesn’t always make financial sense to pay bills by direct debit. For example, paying for home or car insurance every month may cost more. In this case, interest charges may be levied. Failing to pay your TV licence as a lump sum may also mean higher charges.

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The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.