The big advantage of using Direct Debits or standing orders to pay bills is that you’ll never miss a payment, as the money comes out of your account automatically.
However, there are some fundamental differences between these two payment methods, and it’s a good idea to try to get to grips with these so you’re clear on what your rights are if something goes wrong.
Here’s what you need to know.
How do Direct Debits work?
When you set up a Direct Debit you are essentially instructing your bank or building society to allow a company you need to pay regularly to collect the money you owe them from your account. The company must have provided you with advance notice of how much they will be taking and when.
Once the Direct Debit is arranged, the money will be deducted automatically on the agreed date. If the company you’re paying needs to amend the date or amount, they must notify you first.
You can usually see all the Direct Debit payments you’ve set up on your account, as these payments have a DD next to them. You can cancel a Direct Debit whenever you want by contacting your bank or building society either by phone or online. Once you’ve cancelled a Direct Debit it’s worth checking your next few bank statements just to make sure the payment isn’t still coming out of your account.
If you set up a direct debit, you’re automatically protected by a ‘direct debit guarantee’ that says you’ll get your money back if a direct debit has been set up in error or the wrong amount has been taken. If this happens, you should be able to get a refund straight away from your bank or building society. Find out more about the Direct Debit guarantee here.
It doesn’t matter whether it’s a mistake by your bank or the organisation you’re paying, it’s still the bank that must refund your money.
How do standing orders work?
A standing order works in the same ways as a Direct Debit in so far as it’s a regular payment of the same amount that’s paid to a company on a set date.
A standing order is designed for those payments which definitely won’t change from month to month. This means standing orders may not be a suitable option for paying bills which might vary each month, such as your energy or phone bills. Like a Direct Debit, you can change or stop a standing order whenever you want.
What are the main differences between standing orders and Direct Debits?
The biggest difference between these two types of payment is that a Direct Debit is arranged by the company you’re paying (with your consent to set it up) whereas you set up a standing order yourself directly with your bank.
The other main difference is that Direct Debits can be for varying amounts, whereas standing orders are for a set amount.
What happens to Direct Debits and standing orders when I switch bank accounts?
Some people who have lots of standing orders and Direct Debits set up put off changing bank accounts because they think they have to manually transfer all their payments from their old account to their new account.
However, current account switches are now arranged through the Current Account Switch Service which will redirect payments to your new account on your behalf. Each time an electronic payment is redirected an automatic message is sent back to the company the Direct Debit or standing order was arranged with, advising them of the new account details so they can update their records.