They are simply automatic payments from your bank account. It then stops you missing any payments and save the hassle on making continuous manual payments.
What is the difference
With a direct debit, you give a company permission to take money from your bank account on an agreed date for whatever the agreed amount whether it is fixed or a variable balance such as a utility or credit card bill.
A standing order is an instruction to the bank to pay an exact amount to another account on a regular basis such as a rent payment.
They both allow you to set up automatic payments but don’t get them confused. You need to make sure there is enough money in your account to cover the payments each time they are due. If there aren’t enough funds in your account, they could refuse to make the payment and charge a fee. Alternatively, they payment may be carried out and use your overdraft which could result in a bank charge.
What is a Direct Debit
When setting up a Direct Debit, you have told your bank to let an organisation take money from your account. The organisation can then collect any amount owed to them. Direct Debits are useful for paying regular bills if the amounts vary.
What are the advantages:
- They save time and effort. You don’t have to worry about missing a payment and they don’t cost anything to set up
- Saved money. Some organisations will offer a discount for paying by Direct Debit
- Safe and secure. All Direct Debits are covered under the Direct Debit Guarantee
To set up a Direct Debit, you can contact the organisation and they will tell you what to do. Usually, you fill in a form and send it to them, or it can be set up online or over the phone.
What is a Direct Debit Guarantee
It will protect your money when using Direct Debits. Every organisation that offers a Direct Debit service has to sign up to the Direct Debit Guarantee which offers protection such as:
- The ability to cancel your Direct Debit whenever you want to.
- Ten day’s notice is given prior to any changes of amount, frequency or date of your payment.
- A full and immediate refund if your bank or the organisation you pay makes an error.
What is a standing order
When setting up a standing order, you are telling your bank or building society to make a regular payment to another bank account or building society. They are not the same as a Direct Debit as you pay the exact amount you chose and not the varying amount you owe to an organisation. So, what are the advantages:
- You can set them up to keep on paying indefinitely, or to end on a certain date or after a set number of payments.
- You have full control over them. You can start, stop and amend payments whenever you want.
- Can use them to move money between your own accounts if you want to pay a set amount each month in a savings account.
How to set up a standing order
With most banks you can set up a standing order through online, phone, branch or by post. You will need the account number and sort code of the person the payments are going to. They don’t cost anything to set up but make sure there are sufficient funds in the account otherwise a charge up to £25 could be applied even if the payment doesn’t go through.
How to transfer them to a new bank account
If you change bank accounts using the Current Account Switch Service, this ensures all your incoming and outgoing payments will be moved to your new bank within seven working days.
