What is a transit item?
An item in transit is a check or draft issued by an institution other than the bank where it was originally deposited. Items in transit are separated from internal transactions involving checks issued by a bank’s own customers.
Shipments in transit are submitted to the drawee’s bank either by direct presentation or through a local clearing house.
Key points to remember
- An item in transit is an interbank transaction in which a check or draft is issued at one bank for deposit at another bank.
- A common example of an item in transit is a check deposited at your bank that was written by someone who is a customer of another bank.
- Items in transit must be reconciled using a clearing mechanism or regional processing center. Today, most items in transit are cleared electronically through an ACH network.
Understanding items in transit
Let’s say John writes Susan a personal check for $ 50 from her 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. Since the item is taken from an account at a different bank than where it is deposited, it is an item in transit.
Items in transit may also be presented to the drawn bank by one of the Federal Reserve banks or a regional check processing center. These checks are typically drawn and sorted by banks before their own checks are processed.
When a bank accepts a transit check or other transit item on deposit, it must clear the item with the bank on which it is drawn. This means that he must verify that there are sufficient funds in the account from which the item is drawn to cover the item, and then obtain these funds from the issuing bank.
How banks handle items in transit
Most banks will suspend a deposited transit check, as permitted by Federal Reserve Regulation CC. CC regulation allows banks to block up to nine days on transit shipments. Most banks will suspend an item in transit long enough for the item to be cleared by the account it is drawn into. Since the instrument is drawn on an account at a different bank than the one where it was deposited, it may take a few days.
However, many banks make funds from deposited items in transit available the next business day after deposits, or two business days later, as per policy. This is possible because electronic check conversion and other forms of electronic bank draft conversion allow transit shipments to be cleared more quickly.
If there are not enough funds in the account from which it is drawn, the item in transit will not be cleared. When this happens, the funds will not be deposited as plans. In some cases, a bank may agree to cash an item in transit before it is cleared, but if this is not the case, the bank will then debit the amount from the depositor’s account to cover the difference.
Automatic clearing house transfers (ACH)
An ACH transfer is a bank-to-bank electronic money transfer that is processed through the automated clearinghouse network. ACH transfers are a way to transfer money between accounts at different banks electronically. They allow you to send or receive money in a convenient and secure way.
You might be using ACH transfers without even realizing it. If you are paid by direct deposit, for example, this is a form of ACH transfer. Paying your bills online through your bank account is another. You can also use ACH transfers to make one-time or recurring deposits to an individual retirement account, taxable brokerage account, or education savings account. Business owners can also use ACH to pay vendors or receive payments from customers and customers.
In March 2021, ACH transfer volume hit a record 2.7 billion payments, the highest monthly volume in ACH network history.