Standing orders and Direct Debits are two ways to make payments from your account. Although they do similar things, they have completely different purposes.
Most people have at least 1 direct debit set up – that’s 80% of people in Britain to be precise. But even if you have one, do you really understand what it means and how it works? Let’s have a look at the differences between these two payment methods, and understand how and when you might want to set one up.
Standing Orders
What is a standing order?
A standing order is set up when you tell your bank you want to make regular payments to another account. You choose how much you want to pay and when the payments will come out. These payments will then come out of your account automatically on the dates you have specified.
You have complete control over your standing order and can cancel it whenever you want.
Why would you use a standing order?
You would set up a standing order if you wanted to make regular and fixed payments. For example, you might use a standing order to:
- Make your monthly rent payments
- Send a set amount to your savings account regularly
- Donate money to a charity each month
If you wanted to send varying amounts to different accounts each month then a standing order probably wouldn’t be the best choice for you.
Direct Debits
What is a Direct Debit?
A Direct Debit is set up by an authorisation, rather than by you. Unlike standing orders, which are set up for you to send money from your account, Direct Debits are set up to give companies permission to take money from your account when a payment is due.
The amount you pay in your Direct Debit does not have to be a fixed amount. The cost may vary each month depending on your usage of a product, i.e. going over on your contract phone bill.
When would you use a Direct Debit?
A Direct Debit would be set up by a company or organisation when you agree to a payment plan or contract. For example:
- Your gym membership
- Utility bills
- Online subscriptions
- Loan repayments
If you need to cancel a Direct Debit you can do this by contacting your bank, and sometimes you can do it yourself using online banking.
If a Direct Debit payment comes out of your account which is incorrect, you are protected by the Direct Debit Guarantee. You’ll be able to claim a refund on any incorrect payments by contacting your bank.
