Direct Debits and standing orders make sure your bills are paid automatically. It’s important to know how and when to use them, what the costs are and how to sort out any problems.
What’s the difference between Direct Debits and standing orders
Direct Debits
These give a company permission to take money from your bank account on a date agreed with you. For example, you might use a Direct Debit to pay your gas and electricity bills.
The company need to notify you of any change to the amount or date.
Standing orders
These give the bank an instruction to pay an exact amount to their account regularly. For example, you might set up a standing order to pay your rent.
Did you know?
According to the Financial Conduct Authority, you’re less likely to face unarranged overdraft charges if you use a mobile banking app and text alert service.
When you set up a Direct Debit, you tell your bank or building society to let an organisation take money from your account.
The organisation can collect however much you owe them. But they have to tell you in advance (usually ten working days) how much they’ll take, when, and how often.
Direct Debits are handy for paying regular bills, such as gas or electricity – especially if the amount regularly changes.
What’s good about them?
They save you time and effort, as there’s no need to worry about remembering to pay a bill. And you avoid fines for paying late.
They also save money. Lots of utility providers, such as gas and electricity, give you a discount for paying by Direct Debit.
And they’re safe and secure. The bank will pay any incorrect payments back to you.
Are there any disadvantages?
You do need to stay in control. Keep track of your Direct Debits and make sure there’s enough money in your account to cover the payments. Try setting yourself a reminder to check.
This is easy to do, especially if you have online access to your account. If not you might end up being charged by your bank – see Do they cost anything? below.
Who can use them?
Anyone with a Current account or a Basic bank account. Some prepaid cards or credit union accounts can also be used, but Post Office card accounts cannot.
The minimum age they can be used is based on the minimum age of opening a bank account, which for some accounts is as young as 11 years old, so it’s best to check with your bank or building society.
How to set up a Direct Debit
The organisation collecting the payments will tell you what to do. Usually, you fill in a form and send it to them, or set it up online or over the phone. They’ll let your bank know.
You can cancel a Direct Debit at any time by contacting your bank – you can sometimes do this through online banking.
Do they cost anything?
No. Banks don’t charge you for making or setting up Direct Debits.
But watch out for refused payments. If you don’t have enough money in your account to cover a Direct Debit, your bank can refuse to make the payment and might charge you. This charge is usually between £5 and £25. Even if they do make the payment, you might go overdrawn without noticing. This means you’ll have to pay overdraft charges.
Many banks will try to contact you if a payment has failed, so you have time to put money in. If they don’t offer this, consider switching to a provider who does.
Find out more about the retry process in Payment UK’s ‘Pay your way’ guide
What if there’s a problem with a Direct Debit?
The Direct Debit Guarantee protects you. This means that if the bank or the organisation collecting the Direct Debit makes a mistake – such as taking the wrong amount – you can get a refund.
If your provider has gone into administration, the Direct Debit guarantee is at the bank’s discretion.
If you have a problem with a Direct Debit, contact your bank.
Find out more about Direct Debits on the Bacs website
What is a standing order?
Top tip
You can use a standing order to transfer money to your savings account automatically. Start with a small amount and watch your savings grow.
When you set up a standing order you tell your bank or building society to make regular payments to a particular bank or building society account.
Standing order aren’t the same as Direct Debits. They pay exactly the amount you choose – not the amount you owe to an organisation.
You can set them up to keep on paying indefinitely, to end on a certain date, or after a set number of payments.
You’re in full control – you can start or stop them, or change the payment amount, whenever you want.
They’re useful for paying fixed costs, such as your rent.
What’s good about them?
They’re useful where you can’t use a Direct Debit. For example, to make regular payments to a person such as your landlord.
You can use them to move money between your own accounts. This might be useful if, for example, you want to pay a set amount each month into a savings account.
Who can use them?
You can set up standing orders from Current accounts and Basic bank accounts. You can also use some prepaid cards or credit union accounts – but not Post Office Card Accounts.
How to set up a standing order
With some banks and building societies, you can set them up online or over the phone.
Alternatively, you can complete a standing order form and give it to your bank. You’ll need the account number and sort code of the person you’re paying.
You can cancel a standing order at any time, or change the amount or payment date.
Do they cost anything?
No. Banks don’t charge you for setting up standing orders.
But look out for refused payments. If there isn’t enough money in your account to cover a standing order, your bank can refuse to make the payment and might charge you. The charge is usually between £5 and £25. Even if the bank does allow the payment, you might go overdrawn without noticing. This means you’ll have to pay overdraft charges and fees
The ‘retry process’ means you have until 2 pm – as a minimum – to pay money into the account to cover the payment when it’s ‘retried’ by your bank or building society that day.
Many providers will get in touch with you on the day if a payment has failed. This is so you have time to put money into your account. If your bank or building society doesn’t do this, consider switching to a provider who does.
Find out more about the retry process in Payment UK’s ‘Pay your way’ guide
How to avoid and sort out problems with standing orders
Here are some tips:
- Regularly review your standing orders, and shut down payments to services you no longer need.
- Check the bank account details you give, the amount and the payment date.
- It’s your responsibility to make sure the payment is for the right amount if it changes. For example, for a mortgage payment if the interest rates change.
- If you have a problem with a standing order, contact your bank.
It’s important not to confuse Direct Debits and standing orders with continuous payment authorities (CPAs).
CPAs take recurring payments from your debit or credit card, whereas Direct Debits and Standing Orders take payments from your bank account.
It’s best to avoid CPAs. This is because they let companies – such as payday lenders, or certain subscription services, such as gym memberships – take the money they think you owe them, when they think they’re owed it.
There have also been problems cancelling CPAs.