Standing orders, Direct Debits, recurring card payments. You’ve probably heard of these and you know they all take money out of your account. 🙃
Although they’re all types of regular, automatic payments that help you pay for bills and other commitments – there are some major differences between them. Let’s dig in, shall we?
What is a Direct Debit?
You might use a Direct Debit to pay for:
Utility bills e.g. gas, electricity 💡
Paying off your credit card each month
They can be used to make fixed payments but are particularly useful for bills that differ in amount each time. 📊
Setting up a Direct Debit
To set up a Direct Debit, you fill out a Direct Debit Instruction. This is a form that will ask for the following bank account details:
Account holder name
Account number (usually an 8-digit number)
Sort code (a 6-digit number in the format 12-34-56)
A Direct Debit is managed by the company you give permission to. Apart from providing your details, you don’t have to do anything else.
This means you can relax as you’ll never have to worry about missing a payment, something which could negatively affect your credit score. 🙇
When you use Direct Debits to keep on top of your bills, it’s still up to you to make sure there’s enough in your account when payments go out. If you don’t, your payment will bounce and be returned unpaid.
The company has to tell you the amount you’ll pay and the date on which the payment will be made before taking payments, so you can be prepared.
To cancel a Direct Debit, you usually have to contact your bank. You’re also covered by the Direct Debit Guarantee: you’ll get an immediate refund for any payments made from your account that shouldn’t have gone out, giving you a nice extra blanket of safety. 🦺
What is a Standing Order?
A standing order is a regular, fixed payment set up from your account to be paid to another bank account. They can be set up directly from your mobile banking app.
Unlike Direct Debits, standing orders put control in your hands. You decide when they go out, and how much.
But for that reason, they can’t be used to pay variable amounts. They’re no good for bills that change month-to-month, like your electricity bill. 🙅
Standing orders can be paid indefinitely or until a set date. For example, you can set up a standing order to be paid monthly until the 5th December next year and the payments will automatically stop on that date, meaning you don’t have to remember to go back and cancel it. 😌
Some banks also let you stop the standing order after a set number of payments. If you have a 12-month contract with your uni landlord made up of 12 equal monthly payments, this could be a great option.
It’s easy to change the payment amount or frequency of a standing order at any time. Plus, they can be cancelled straight from your bank account.
However, unlike with a Direct Debit Guarantee, you’ve got no protection if you accidentally set up your standing order incorrectly. Meaning you might not get your money back if you send the wrong amount or forget to cancel the standing order. 😢
Standing orders are great for:
Paying monthly rent to your landlord
Making regular payments into your savings account (automating your savings makes it more likely you’ll stick to your savings goals 💰)
Monthly payments to a charity you care about
What is a recurring card payment?
You’ll be very familiar with these, as they include payments for:
Subscription services such as Netflix or Spotify 🎵
Gym or other memberships
Phone bills (can be paid by direct debit or recurring card payment)
How to know if you’re setting up a recurring card payment
You’ll know you’re setting up a recurring card payment if you have to provide your:
Card number (long, often 16-digit, number on your bank card)
Card expiry date
Security code/CVV (3- or 4-digit number usually on the back of your card)
So instead of providing your bank account details, you’re specifically providing the details of your bank card. 💳
Any automatic payments made from a credit card are recurring card payments. This is because you can’t set up Direct Debits with a credit card.
One thing to know is that recurring card payments can be less secure than Direct Debits. You’re giving a company permission to take money from your account whenever they think they’re owed it – this doesn’t mean they will, but it’s something to bear in mind. Companies also don’t have to specify a date on which they’ll take payment.
This doesn’t mean you should avoid recurring card payments. You’ll have to set these up for some services, and who wants to miss out on their favourite music or TV shows, right? But it’s good to know the difference between these different types of payments.
It’s easy to get carried away with these types of subscriptions, so make sure to stay on top of them. You can cancel a recurring card payment by contacting the company or your bank.
There are lots of similarities between standing orders, recurring card payments and direct debits. But there are also many important differences that it’s great to be aware of. Budgeting can help to make sure you stay on top of all of your different payments.