Direct debit rules: FAQs

Direct debits are one of the most common ways to make regular payments. This could be payments to cover an energy, phone or credit card bill. They are a handy way to keep track of regular payments and make sure you settle your bills on time. Here we look at everything you need to know about direct debits, including what they are, how they work and how to set up and cancel one. 

What is a direct debit?

Direct debits are generally used to pay regular bills from your current account. The billed amount can be different for each payment, but the day they are paid is usually fixed.

Most banks, utility companies and retailers prefer direct debits for regular payment because they permit them to take what you owe straight from your bank account.

Get a current account that lets you pay by direct debit

How much do they cost?

Nothing. Using direct debits to pay bills is 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

• They are hassle-free: if you have money in your bank, your payment will be paid automatically

What is the difference between a direct debit and standing order?

How to set up a direct debit

You need to contact the company or organisation you want to pay to set up a direct debit, which you can do over the phone, online or by post.

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 contacting your bank or building society yourself.

(The 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 need to:

• Inform your bank - either by phone, online or in writing

• Inform the company taking the direct debit.

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 that ensures that any company using direct debits complies with a set of rules, including:

• Informing you at least ten 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 the payment.

Can a direct debit be taken twice?

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

However, errors of this kind are 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 Guarantee.

The service will take care of moving all payments going into and out of your account, including direct debits and standing orders. Any payments made to your old account will be transferred to your new account for the 36 months following the switch.

If anything goes wrong, the bank will refund any interest or charges on either your new or old current account, so you should never be out of pocket if an error occurs during the switch. 

Current Account Switch Guarantee

What happens if you don’t have enough money to pay a direct debit?

If a direct debit comes out of your account, but there isn’t enough money in your current account to pay it, you may be charged a penalty fee. 

Your bank or building society will sometimes send you a warning message if a direct debit is coming out and there aren’t enough funds in your account to pay for it. You can usually set this up with your provider, and it’s a good way to avoid being charged.

Can you budget using direct debits?

Paying your bills by direct debit can make budgeting much easier because you know when the company will take the money.

But remember, if your bill varies from month to month, then so will your direct debit, so you need to make sure you have sufficient funds available in your account. For example, energy bills often change month by month, so try to put by a little extra in case you need to pay more for one month.

Many people set up a separate bills account specifically for their direct debits, so they know that the money in their spending account isn’t needed to cover their bills.

Take a look at our guide for more tips on budgeting

Do direct debits go out on weekends?

No. According to direct debit rules, they are charged to your bank account on the same date each month, unless this falls on a weekend or on a bank holiday, in which case the company will take them on the next working day.

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

Find out more on the Current Account Switch Service website

What happens if you don’t use direct debit?

A direct debit that hasn’t been used for a certain period is automatically removed. Usually, this happens after a year, but it may be longer. Always check the terms and conditions for details.