What is a standing order in banking?

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A standing order is an automatic payment you set up through your bank. You choose the amount and how often it’s sent, and your bank handles the rest. But how does a standing order work, and how is it different from a Direct Debit? In this guide, we’ll answer some of the most frequently asked questions and see how standing orders can help when it comes to managing payments efficiently.

A standing order is a regular, fixed payment that you set up with your bank. You choose the amount, the recipient, and how often it’s paid – this could be monthly, weekly, or yearly. Your bank then processes the payments automatically on a specific date.

So what is a standing order actually meant to be used for? Because the amount stays the same every time, a standing order could be suitable for any payments that you know won’t change from one month to the next. A common example is monthly rent or mortgage payments, as these are unlikely to vary. They can also come in handy if you’re splitting regular bills with a housemate.

You might be wondering, “how does a standing order work?” It’s similar to sending a one-off payment, in that you’ll need the account details of the recipient. The only difference is that you’re giving instructions to your bank to send a fixed amount to that recipient repeatedly, and the money will come out automatically on the schedule you’ve chosen. You can adjust the payment amount or frequency as needed. You can also decide whether to keep the standing order going indefinitely or set it to stop after a certain number of payments.

Aside from the use cases mentioned – paying bills, rent, mortgage, or subscriptions – you can also use standing orders to transfer money between your accounts. For example, you might want to move a portion of your salary from your current account to a savings account each month. Similarly, if you’re following a budgeting method like the 50/30/20 rule, a standing order would simplify the process by automatically saving the required amount each month. And because you’re in control, you can stop the standing order or modify it at any time

If you’ve fallen out of the habit of saving, setting up a standing order could help you get back on track. With the Raisin UK Savings Plan, for example, you can automatically transfer money to an easy access savings account every payday, so you can save without having to think about it. You choose the amount, set up the standing order, and Raisin UK takes care of the rest. That way, you get into the savings habit and know exactly how much you have to spend for the upcoming month.

The main difference between a standing order and a Direct Debit is whether the payment amount is fixed or variable. With a standing order, the amount stays the same every time. In contrast, a Direct Debit can vary depending on the bill, like an electricity bill that changes with your usage or based on the provider’s charges.

The other difference is who sets them up. With a standing order, it’s you (the account holder) who decides how much you’ll pay and when. For Direct Debits, the company or person you’re paying sets it up and asks for your permission to take payments from your account. They’ll then notify you of the amount and date, and the payment is taken automatically.

The obvious advantage of a standing order is that you don’t need to worry about manually transferring amounts of money on time and keeping track of whether you’ve paid someone. However, there are a few drawbacks to consider.

• Standing orders are usually fee-free for both sender and recipient, unlike credit card payments or bank transfers, which may come with a charge.

• Banks make it easy to set up standing orders. The simplest way is often through online banking, making it more convenient than other payment methods.

• They are particularly well-suited to recurring payments like bills, as you can rely on them to be paid on time, helping you avoid late payment fees.

• Banks don’t typically give notifications with standing orders, meaning the recipient might only notice weeks later if a payment has failed. This can be a problem if they don’t regularly check their bank statement. 

• If the payer doesn’t have enough funds in their account, the bank may give a deadline to add money, or even force the payment, which can push them into their overdraft and result in a fee.

• Because the payment comes out automatically, the payer can easily forget about them and potentially end up paying for services they no longer use. 

• Changing details sometimes requires cancelling and setting up the standing order again. If the amounts change frequently, a Direct Debit might be a better option.

You can set up a standing order from a current or basic bank account, and some savings accounts offer this option, too. Businesses can also use their business account to streamline their payments.

Most banks let you set up a standing order online or through their mobile app. There might be limits on how much money you can send, but the process is usually straightforward. You can look for the ‘regular payments’ or ‘standing orders’ section to get started.

You’ll need the recipient’s account details, including sort code and account number, plus a payment reference if you’re sending money to another person or company. This helps them identify your payment easily.

If you want to cancel a standing order, you can just let your bank know – online, through mobile banking, over the phone, or in person. It’s generally recommended that any cancellations are made by the day before the payment is due, though giving more notice is always a good idea to ensure everything is processed in time.

If you’re paying a company, it’s worth double-checking that you’ve met any contractual obligations first, so you don’t end up having to set up a new payment.

Standing orders can be used to transfer money regularly to an easy access savings account. If you want to quickly and easily open a savings account in the UK, register for a Raisin UK Account and log in to apply today. Opening an account with Raisin UK is free, and you’ll find competitive interest rates from over 40 banks and building societies.

This will depend on both your bank and the receiver’s bank. Some payments are processed from midnight of the day they are scheduled to go out, thanks to the Faster Payments Scheme, but others can go through later, up until 3pm.

Standing orders are processed on the chosen date. If the payment falls on a weekend or bank holiday, it will typically be processed on the next working day. Payments may clear the same day, but it can take between three and five working days, especially if they’re going to a different bank.

If there aren’t enough funds in your account, the payment will fail and won’t be processed again until the next due date. Some banks try again the same day. 

You’ll typically be notified by your bank and have until around 2pm to add funds. If the payment still fails, you might face a fee or overdraft charges. 

Depending on the particular payee, missing payments can also result in late fees, hurt your credit score, and strain relationships with suppliers (if it’s a business payment).