Is a standing order or direct debit better for making regular payments?
- Standing orders can be simpler than direct debits, mainly because the business is not involved in claiming payments
- You can edit or cancel a standing order whenever you like
- The main advantage of direct debits is the flexibility around the dates and amount of money billed
- Direct debits give you more consumer protection under the Direct Debit Guarantee
- The Direct Debit Guarantee says your bank should refund disputed payments without question, pending further investigation
What is a standing order?
A standing order is a regular payment which you tell your bank to make.
They’re typically used to make rent payments, monthly charity donations or if you want to make a regular payment into a savings account.
A standing order amount will remain the same, unless you amend your instruction.
With standing order payments the money is transferred through the Faster Payments Service, and will be processed on the same day.
Standing orders can be simpler than direct debits, mainly because the business is not involved in claiming payments from you.
At set times, your bank just sends the money into the beneficiary’s bank account and only you can alter the payments. The beneficiary can be anyone.
What is a direct debit?
The main difference between a standing order and direct debit that when you set up a direct debits you're giving permission to a company for them to take a certain amount each month.
For example if you’ve arranged for your mortgage, phone, energy or gas bills to be paid automatically each month.
You do this signing a direct debit form or mandate.
The main advantage of direct debits is the flexibility, as the payments can vary in amount or frequency. The variable nature means that organisations or individuals can claim different amounts at different times.
Its usually better to go for a direct debit as it gives you more consumer protection.
Find out what you should do if money has been taken from a cancelled direct debit.
Direct Debit Guarantee
Usually, you have to sign a direct debit form, although some particularly trusted companies are authorised to set up direct debits over the phone.
If that sounds a little risky, remember that the company must have obtained the bank account details from you and that you are protected by the Direct Debit Guarantee.
In order to be an approved company, the beneficiaries of direct debits are subjected to careful vetting procedures and, once approved, they're required to give indemnity guarantees through their banks.
The Direct Debit Guarantee applies to all banks and building societies taking part in the direct debit scheme.
The guarantee states that your bank should refund disputed payments without question, pending further investigation.
It says that:
- if there is a change in the amount to be paid on the payment date, the person receiving the payment (the originator) must notify you in advance
- if the originator or the bank/building society makes an error, then you are guaranteed a full and immediate refund of the amount paid
- you can cancel a direct debit at any time by contacting your bank or building society. Written confirmation may be required. You should also notify the organisation.
Find out how to cancel your direct debit or standing order in our guide.