Direct Debits: everything you need to know

Updated on 09 November 2019

Direct Debits can help you pay your bills on time, but there can be some confusion over how exactly these work. We reveal everything you need to know.

What is a Direct Debit and how do I set one up?

A Direct Debit lets your bank know that a certain organisation is allowed to take money out of your account.

That specific organisation can take the money you owe them from your account, but they have to tell you the amount and when they will take it.

Typically, you will be notified 10 working days before the money is taken. 

A Direct Debit is usually set up by the organisation that will be collecting the payment from you, so you just need to fill out a form either in person or online.

In order to set up a Direct Debit, the organisation will take the following information from you:

  • Your name and address;
  • The name and address of your bank or building society;
  • Your bank or building society account number;
  • The branch sort code of your bank.

Once this has been processed, the organisation will be able to take regular payments from your bank account, without you having to do anything to confirm the payment.

Monthly payment calendar and calculator (Image: Shutterstock)

Direct Debits for bills, Council Tax and more

Anyone with a current account or a basic bank account can set up a Direct Debit.

The minimum age is based on the minimum age of opening a bank account, which for some accounts is as young as 11 years old.

Most banks will only open current accounts to those over the age of 18, whilst most fee-free basic bank accounts can be opened by 16-year-olds.

Direct Debits are most commonly used to pay for Council Tax, energy bills and more.

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Cancelling a Direct Debit

If you change your mind about having a Direct Debit, you can cancel it at any time.

Normally you need to give your bank at least one day’s notice before the payment is due to come out if you want to prevent the money from leaving your account.

Cancelling a Direct Debit through your online banking service is usually very simple, but you can also do it in branch or over the phone.

It is vital the recipient is notified that they will no longer be able to take payments from you, and to note this is not an alternative to informing the organisation that you no longer want their services.

If you don’t inform the organisation that you no longer want their services, you could be hit with fees or non-payment penalties.

Depending on the type of Direct Debit, non-payment may also impact your credit score, so make sure you officially cancel any services in writing before stopping payments.

It is also a good idea to check your bank statements regularly to ensure that no further payments are being taken without your consent.

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Missed direct debits impact credit report (Image: Shutterstock)

Am I protected?

The Direct Debit Guarantee is a safety net for anybody using Direct Debits by protecting customers if payments have been made incorrectly or fraudulently.

The Guarantee is offered by all banks and building societies that allow customers to set up Direct Debits.

It provides assurance to everybody with a Direct Debit that any money wrongfully taken by the specific company will be fully refunded by the bank.

To receive a refund from your bank or building society, you need to contact them directly as they are responsible for refunding you, regardless of whether the fault was theirs or the organisation taking the payment.

What if I don't have the money in my account?

You can be charged if a Direct Debit payment is refused due to lack of funds. 

If there is not enough money in an account, the organisation will try to take the pre-arranged amount later in the day.

The retry process was introduced in 2013 to give customers the opportunity to put money in their account if the first payment is unsuccessful.

A bounced payment will be re-attempted later that day, at 2pm at the earliest, and if it is successful, you won’t incur any late payment charges or unpaid item fees.

It is only if the second attempt is also unsuccessful that you could face charges.

Best accounts often require Direct Debits

Technically you don’t need to set up a Direct Debit, but many of the most generous current accounts require that you have at least two active Direct Debits in order to claim any switching rewards or perks on offer.

They do this to try and force you to make that your primary account (ie the one you pay money in and out of each month) rather than simply open it for the perks and never use it again.

As a result, savvy customers will set up as many Direct Debits as possible so they can take advantage of numerous generous bank accounts.

But there is some confusion over what payments constitute a Direct Debit, as some people wrongly assume any regular monthly payment that's taken out of an account each month counts.

We'll explain more in the next two sections.

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How is a recurring payment different from a Direct Debit?

A recurring payment, also known as a Continuous Payment Authority (CPA) is similar to a Direct Debit, as the firm can take money from your account, but they can change the amount they are taking, without giving you notice.

Payments do not come directly out of your account like a Direct Debit, but rather are made via a credit or debit card.

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To set this up a recurring payment, the company will request the long number on the front of your debit or credit card rather than your bank account number and sort code.

This is the most obvious way to tell the different between a CPA and Direct Debit, as both have the power to take money from your account regularly.

But it is only Direct Debits that make you eligible for certain banking rewards.

CPAs do not have the same guarantees that Direct Debits do, so there is no automatic protection should the wrong amount be taken from your account. 

It is possible to claim back money that was incorrectly taken from your account, but this can be a lengthy process and there is no guarantee it will be successful.

If you decide to switch your current account, all your Direct Debits and Standing Orders will be transferred by the Current Account Switch Service. 

This does not apply to a CPA, which could result in payments being taken from cards that you no longer have, and the payment being refused.

Making an online payment (Image: Shutterstock)

We have warned against using recurring payments in the past and instead recommend you switch to Direct Debit, pay manually, or consider using a prepaid card which will prevent companies taking more than what is on the card.

Benefits of Direct Debits

You can't forget to pay your bills 

Possibly the best thing about Direct Debits is that once they are set up, you don't need to remember to manually pay your bills each month, which reduces the risk of costly late payments.

They can get you rewards

Bank accounts that offer attractive joining rewards are often dependent on you having two or more active Direct Debits on that account.

They save time

Not having to manually pay the bills also saves you a lot of time in terms of managing the payments each month.

Direct Debits are secure

Being covered by the Direct Debit Guarantee is a big positive of Direct Debits when compared to CPAs and Standing Orders, as it means you will always get your money back if something goes wrong.

They are easy to set up

As outlined above, setting up a Direct Debit is as easy as doing a normal bank transfer, and once it's done, it's done.

Direct Debits are flexible

Once they are set up, the amount to be paid by Direct Debit and the date that the money leaves your account can easily be changed.

You can also easily cancel any Direct Debits that you no longer want or need.


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