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Differences between standing orders & Direct Debits

Tuesday 23rd Aug, 2022

 

If you have a bank current account, Standing orders and Direct Debits are two ways you can use to make payments out of your account.    While they achieve the same thing, there are some important differences between them that you should know about.

Let’s take a look at both, find out how they work and what they are best used for:

 

Standing Orders

What are they?

A standing order is set up when you tell your bank that you want to make regular payments to another account.

You choose how much you want to pay and the day/date and frequency when the payments will come out.

Your bank will then arrange to send these payments out of your account automatically on the dates you have specified.

This should continue until you tell your bank to change or cancel the standing order. 

When would you use one?

You would set up a standing order if you wanted to make regular fixed payments. For example, to:

• Make your monthly rent payments
• Send a set amount to your credit union account regularly
• Donate money to a charity each month

If you want to send varying amounts to different accounts each month then a standing order may not be the best choice for you.

 

Direct Debits

What are they?

A Direct Debit is set up by an organisation you need to pay regularly, rather than by you.

While a standing order is set up by you and in your complete control, Direct Debits are set up to give firms permission to take money from your account whenever a payment is due.

The amount you pay in a Direct Debit does not have to be fixed. The cost may vary each month depending on your usage of a service, such as going over on your contract phone bill.

When would you use one?

A Direct Debit would be set up by an organisation when you agree to a payment plan or contract. For example:

• Your gym membership
• Utility bills
• Online subscriptions
• Your mortgage

If you need to cancel a Direct Debit you can do this by contacting your bank, possibly via online banking.

If a Direct Debit payment comes out of your account which is incorrect, you are protected by the Direct Debit Guarantee. A refund of any incorrect payments may be claimed by contacting your bank.

With both standing orders and Direct Debits, it’s important to leave sufficient funds in your bank account on the day they fall due, or they may stop, and you may incur a bank charge.

 

This article is for general information only and does not constitute financial, legal, or any other form of advice.

JES

 

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