What is the difference between an automatic payment and a direct debit?
An automatic payment is arranged with a bank by the person making the payment. It is used to make payments of a certain amount at a certain time to a certain account, usually on a regular basis. These payments are usually used to cover payments that don't change from month to month, such as rent payments. If there isn’t enough money in your account to cover an automatic payment, then the payment will not proceed.
In a direct debit agreement, you sign an authority form, kept at the bank, which gives an organisation authorisation to deduct money from your account at regular intervals. Direct debits are a common way for people to pay phone and electricity bills which they have to pay each month, but which vary in amount.
Many people do not realise that direct debit payments can be withdrawn from your account even when there is no money in it. If this happens the bank will probably charge you an overdraft or honour fee. If the payment doesn't go through the bank is likely to charge you a dishonour fee (which is what they can do if you write a cheque and it "bounces").
You should check your bank statements regularly, to make sure that the automatic payments and direct debits match up with the bills.
You can read more about direct debits on the Banking Ombudsman website.
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I have had money removed from the bank by direct debit, but I have not signed any forms. What's going on?
No-one should debit money from your account without your authority and you can cancel a direct debit agreement at any time you wish. Companies can trade under different names though, so it is possible that you may have given a business the authority to take a direct debit and not recognised the trading name on your bank statement.
Under New Zealand law, a business or organisation has to provide you with a statement of your account, so if a direct debit has been taken without you receiving an account statement, you should contact them and get them to send you your account statements.
If you are sure that you didn't give authority for a direct debit, ask your bank to show you a direct debit form with your signature as proof. If you did not give authorisation for the debit, you should ask the bank to cancel the direct debit and to help you find out who has been receiving the money.
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If I cancel my gym membership, who’s responsible for cancelling the direct debit that goes with it?
When you cancel the contract with the gym, they should cancel your direct debit. However they may not do this and tell you that it’s between you and the bank. Therefore it’s a good idea to contact your bank and cancel the direct debit once you have ended your contract.
To cancel a direct debit, give written notice to the bank and whoever you are paying the money to that you will be cancelling the direct debit. If you ask the bank to cancel a direct debit, they must do so according to the Code of Banking Practice.
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Why does it take so long for a cheque to clear?
If a cheque has been made out to “cash”, then it will probably be cleared immediately.
It takes longer if it is made out to a specific bank account name - normally three business days if the receiving bank is different from the bank where the cheque originated. This is because the processing of cheques must be done overnight and must allow time for the bank receiving the cheque to:
- get confirmation from the other bank that there is enough money in the cheque-writer’s account and
- receive appropriate notice if the payment has been dishonoured (e.g. if there wasn’t enough money in the paying person’s cheque account, or the payer changed their mind about paying)
Depending on the bank, it may take only two days to clear a cheque if it originated from the same bank.
If it is urgent, you can ask your bank to clear it more quickly (i.e. on the same day or overnight) but you’ll be charged a clearance fee.
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Why does it take so long for money to be transferred with internet banking?
Every bank in NZ has 'processing times' during which their electronic payments are made. They will also have cut-off times, after which your electronic transfer won’t be processed until the next business day. The actual processing times and cut-off times will vary depending on the bank and on the type of transaction (e.g. automatic payment, bill payments).
If you're having trouble with the timing of payments, you can call your bank and find out what time they process their electronic transactions. If your money is being transferred from another bank, you can call the other bank and find out what times their transactions are processed.
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What is the difference between a debit card and a credit card?
A credit card allows you to spend money that you don't actually have, and works almost like a loan. When you pay for something using a credit card, the credit provider pays the person or business for you, and you pay them back for their loan (with interest, if the money is not paid back before a certain time). A credit card can be good if you have enough income to pay back your credit debt in full before the repayment date each month, to avoid late fees and interest payments charges. More information is on our Credit cards page.
A debit card is different in that you can only use it to spend money which is already in your account. You can still use it for the same sorts of purchases that you can use a credit card for (such as buying things over the internet) and things you can use an an EFTPOS card for (e.g. withdrawing cash from ATM machines).
Having a debit card rather than a credit card can be a good idea if you're living on a tight budget, as it allows you more freedom in how you can pay for things, but also limits your spending so you don't get into trouble with credit card debt. Debit card fees are typically less than credit card fees.