What Is a Transit Item?
A transit item is any check or draft that is issued by an institution other than the bank where it was initially deposited. Transit items are separated from internal transactions involving checks that were written by a bank's own customers. Transit items are submitted to the drawee's bank through either direct presentation or via a local clearing house.
- A transit item is a inter-bank transaction where a check or draft is made at one bank to deposited at another bank.
- Depositing a check at your bank that was written by somebody who is a customer at a different bank is a common example of a transit item.
- Transit items must be reconciled using a clearing mechanism or a regional processing center. Today, most transit items are cleared electronically through an ACH network.
Understanding Transit Items
Let’s say John writes Susan a personal check in the amount of $50, drawn from his checking account at Wells Fargo. Susan takes the personal check to her own bank, Bank of America, to deposit it in her own checking account. Because the item is drawn from an account in a different bank from where it is being deposited, it is a transit item.
Transit items can also be presented to the drawee bank through one of the Federal Reserve Banks or a regional check-processing center. These checks are usually drawn and sorted by banks before their own checks are processed.
When a bank accepts a transit check or other transit item for deposit, it must clear the item with the bank on which it’s drawn. This means it has to verify that there are sufficient funds in the account on which the item is drawn to cover the item, and then obtain those funds from the issuing bank.
How Banks Handle Transit Items
Most banks will place a hold on a deposited transit check, as allowed by Federal Reserve Regulation CC. Regulation CC allows banks to place a hold of up to nine days on transit items. Most banks will place a hold on a transit item long enough for the item to clear the account on which it’s drawn. Because the item is drawn on an account at a different bank from the one where it’s been deposited, this can take a few days.
However, many banks make funds from deposited transit items available the next business day after the deposits, or two business days later, as a matter of policy. This is possible because electronic check conversion and other forms of electronic bank draft conversion make it possible to clear transit items faster.
If there are insufficient funds in the account on which it’s drawn, the transit item will not clear. When this happens, the funds will not be deposited as plans. In some cases, a bank may agree to cash a transit item before it has cleared, but if it does not clear, the bank will then debit the amount from the depositor’s account to cover the discrepancy.
Automatic Clearing (ACH)
An ACH transfer is an electronic, bank-to-bank money transfer that’s processed through the Automated Clearing House network. ACH transfers are a way to move money between accounts at different banks electronically. They enable you to send or receive money conveniently and securely.
You may be using ACH transfers without even realizing it. If you’re paid via direct deposit, for example, that’s a form of ACH transfer. Paying bills online through your bank account is another. You can also use ACH transfers to make single or recurring deposits into an individual retirement account, a taxable brokerage account, or a college savings account. Business owners can also use ACH to pay vendors or receive payments from clients and customers. More than 21 billion ACH transactions were processed in 2017 alone.