500,000 Social Security Recipients Are in for Another Change in October, and It May Not Be a Bad Thing

Key Points

• Beginning Sept. 30, the Social Security Administration (SSA) will stop sending paper checks to recipients.

• For those who don't have a checking account and need time, the SSA says there will be exceptions made.

• Beneficiaries can choose between depositing into their bank account or onto a Direct Express Mastercard.

• The $23,760 Social Security bonus most retirees completely overlook ›

Beginning Sept. 30, the Social Security Administration (SSA) will no longer send paper checks -- with one exception. According to Sen. Elizabeth Warren, Social Security Commissioner Frank Bisignano assured her that the rollout will begin with people who already have checking accounts. Social Security recipients who require access to paper checks will continue receiving them for now.

This could affect some 500,000 Social Security recipients, or less than 1% of total recipients. If you typically receive Social Security benefits via check, you can use this time to determine your next step. The SSA offers two options: You can receive payment via direct deposit to your bank account or a Direct Express card.

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A Direct Express card is a prepaid Mastercard debit card that receives monthly electronic federal benefits directly into the card account. The funds are available on your payment date, and you don't need a bank account to use them. Like any debit card, the Direct Express card can be used to make purchases, withdraw cash from banks and ATMs, and pay bills by phone or online.

If you're receiving paper checks and don't like the idea of the SSA changing your payment method, that's natural. If it helps, look at the following ways this change may work to your benefit.

Image source: Getty Images.

Tougher for the bad guys to access your money

Given the number of new Social Security scams that pop up each year, it's no secret that thieves want access to your money. However, those funds are secure when you opt for direct deposit to a checking account. There's no such thing as someone stealing a direct deposit from your mailbox.

While you should take a few more steps to protect the funds on a Direct Express card, it's still safer than a paper check. Unlike a paper check, a Direct Express card is unlikely to be tampered with by someone. In addition, the card typically features fraud monitoring. If it's stolen, you can report it and have it replaced, limiting your financial liability. Finally, Direct Express cards use secure PINs for transactions, a factor that goes one step further to protect your money.

More convenient

Whether you have direct deposit or the Direct Express card, funds are deposited directly into your account, eliminating the need to visit a bank or ATM to make a deposit. And because funds are available immediately on your regular payday, there's no waiting for the payment to clear. Plus, if you're currently cashing your Social Security checks through a third party, you'll no longer have to waste money on check-cashing fees.

Simplifies record keeping

Direct deposits provide an automatic record of deposits and payments, making it easy to manage your funds directly from online banking (or app) or the Direct Express card app. If you're curious about how much money is in your account or can't recall if you paid a specific bill, knowing is as easy as checking online or the app.

Allows you to set up automatic payments

If you've been receiving paper checks for a while and don't deposit those funds into a checking account, you're probably familiar with the hassle of paying bills. If you decide to open a checking account, it's easy to set up automatic payments for rent, utilities, and other bills. Auto pay through your bank is free and takes one more monthly task off your plate.

May allow for split deposits

Some banks allow you to split your direct deposits between multiple accounts. For example, if you're building an emergency fund or saving for a new oven, you can let your bank know how much money you want deposited into your primary account and how much you'd like to go to savings.

If finding a bank has become an issue

If you currently receive paper checks because you've had trouble qualifying for a traditional bank account due to previous account closures, bounced checks, or account overdrafts, a new option is available to you. It's called Second-chance banking, and it offers you the chance to open a new bank account if that's what you want to do. Second-chance banking provides you with a safe place to deposit everything from Social Security checks to tax refunds, without worrying about whether the money is secure.

Here are three examples of banks offering Second Chance banking. However, these are by no means the only banks that offer you a chance for a fresh start. You may also want to check out any credit unions in your area. Since credit unions are member-owned, they tend to have more flexible policies regarding account applications.

Data sources: Chase, Chime, Capital One.

While changing from paper checks to automatic bank deposits or payment via a Direct Express card may require some adjustment to your routine, you can take comfort in the fact that your money is safer than it once was.

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Dana George has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard. The Motley Fool has a disclosure policy.