What is the difference between a Standing Order and a Direct Debit?
Posted on May 7, 2021
If you’ve ever forgotten to pay a bill, you know the hassle it creates. Direct Debits and standing orders change all that – they make sure your bills are paid automatically. You may have heard both the terms direct debit or standing order when setting up payments for bills, loans or other items on credit. But what do the different terms mean? In this blog post, we will explain what you need to know.
What is a Direct Debit?
The main difference between a Standing Order & Direct Debits is that a Direct Debit is set up by the company you are making the payment to. You permit the company to take a variable amount from your bank account. The amount can vary; however, the company does need to tell you in advance (normally 10 working days before). When you set up a Direct Debit, you sign a form that confirms which company is receiving the payment, and the date the money will leave your account. An advantage of Direct Debit is the Direct Debit Guarantee Scheme which protects you should your account be debited in error.
What is a Standing Order?
Standing orders are automatic payments that you set up yourself. You are in complete control, determining how much to pay and when, and you can amend it at any time. There are no surprises, with the amount changing, unlike with Direct Debits. To set up a Standing Order you instruct your bank to pay a fixed amount at a regular frequency, i.e. weekly or monthly to the companies bank account. Once you have set up the Standing Order, it sticks to your instructions unless you change it. It does not have the same consumer protection. If you need to change it or stop it, it is your responsibility.
What would I use a Direct Debit to pay?
You may use a Direct Debit to pay your telephone bill, TV, or internet bills, also some loans or other forms of credit like Credit cards or Store Cards are Direct Debits. Some companies do not offer much flexibility on the date of the Direct Debit. You need to keep track of the days your Direct Debits are due and make sure there is enough money to cover the payments, if not you may end up getting charged by your bank for a failed payment fee, or going into an unarranged overdraft and being hit with charges.
What would I use a Standing Order to pay?
You may use a Standing Order to pay things like your Council tax or rent as the amount stays the same. You can set up a Standing Order to save with Eastern Savings & Loans at an amount and frequency to suit you. We also use Standing Orders for our loan repayments, as you are in control of the repayment, and our ethos is always about putting you in control of your money. You can keep the Standing Order set up once you have repaid your loan and build up savings. You can also set up an end date for your Standing Order, so if you wanted to make 10 monthly payments, you can set that up.
Also worth noting!
There is another type of automatic payment, Continuous Payment Authorities, (CPAs). This type of payment is done by entering your debit card details to the company website, they then will take money on an agreed date. Many subscription services use this type of payment, as do PayDay lenders. This can result in you having funds leave your account on a range of days, sometimes when you least expect it.