What is a direct debit?

Direct debits are generally used to pay regular bills. The amount can be different each payment, but when they are paid is usually fixed.

Direct debits are the preferred method of regular payment for most banks, utility companies and retailers because they give them permission to take the exact amount you owe them straight from your bank account.

Although this sounds like you are giving away unnecessary access to your bank account there are numerous advantages to paying regular bills by direct debit.

How much do they cost?

Nothing. Direct debits that are used to pay your bills should always be free.

Advantages of paying by direct debit

  • Many companies give you a discount when you pay by direct debit

  • You remove the risk of forgetting to pay - so no late payment fees

  • Hassle free, if you have money in your banks it will be paid automatically

How to set up a direct debit

To set up a direct debit you will need to contact the company or organisation you want to pay - this can be done over the phone, online or by post - and get them to do it for you.

Information you will need to provide:

  • Your name

  • Your address

  • Name and address of your bank

  • Your bank account number

  • Your sort code

  • The name(s) on the bank account

You cannot set up a direct debit by directly contacting your bank or building society yourself.

Regular payments you can set up on your bank account yourself are called standing orders and work slightly differently.

How do you cancel a direct debit?

You will need to:

  • Inform your bank - either by phone, online or written conformation

  • Inform the company that the direct debit is with.

Remember to check if you will be liable for any cancellation fees before you do this.

What is the direct debit guarantee?

Any organisation that wants to collect payment by direct debit will need to sign up for the Direct Debit Guarantee.

This is essentially a vetting process carried out by the banking industry which ensures that any company using direct debits complies to a set of rules including:

  • Informing you at least 10 working days before any changes to the amount, frequency or date of your Direct Debit are made

  • Agreeing that you can cancel a direct debit at any time

  • Offering a full refund if an error is made by the company, bank or building society

You should be provided with a copy of the Direct Debit Guarantee whenever you set up.

Can a direct debit be taken twice?

Like any payment system mistakes can happen, leading to missed payments, incorrect amounts being taken or on rare occasion the same direct debit being taken twice.

However, errors of this kind are very rare and most direct debits are collected without issue.

In the rare event that a direct debit is taken twice, or another mistake is made, you are protected by the Direct Debit Guarantee and you should receive a full refund from your bank or building society.

What happens if you switch bank account?

If you move your current account you will be covered by the Current Account Switch Guarentee

The service will take care of moving all your payments going out and in including direct debits and standing orders. For the next 36 months they will arrange for accidental payments to that account to be transferred to your new account.

If anything goes wrong, they will refund you any interest or charges on either your new or old current account.

Can you budget using direct debits?

Paying your bills by Direct Debit can actually make budgeting much easier because you know when the money will be taken.

But remember, if your bill will vary from month to month then so will the amount taken by direct debit, so you will need to make sure you have funds available in your account.

Many people set up a separate bills account specifically for their direct debits, so they know that the money in their spending account is away from their bills.

When do direct debits leave your bank?

They usually leave your bank account on the same day each month, unless this falls on a weekend or on a bank holiday where they will be taken the next working day.

A direct debit will never leave your account on a weekend or bank holiday.

There is no need to worry about late payment charges or changing your direct debit date as this will be done automatically.

You just need to make sure you have money in your account to pay the direct debit if it will be taken on a different day.