Transit Item: What It Means, How It Works

What Is a Transit Item?

A transit item is a check or draft issued by an institution other than the bank where it was deposited. Transit items are separate from checks written by a bank’s own customers.

Transit items are submitted to the drawee’s bank through direct presentation or a local clearinghouse.

Key Takeaways

• A transit item is an inter-bank transaction where a check or draft is made at one bank to be deposited at another bank.
• Depositing a check at your bank written by a customer from a different bank is an 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 for $50 from his Wells Fargo checking account. Susan takes the check to her Bank of America to deposit it. Because it is drawn on a different bank, it is a transit item.

Transit items can also be presented to the drawee bank through 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 verifying that there are sufficient funds in the account to cover the item and obtaining 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. This hold can be up to nine days. Most banks will hold a transit item until it clears the account on which it’s drawn, which can take a few days.

However, many banks make funds from deposited transit items available the next business day or two business days later. Electronic check conversion and other forms of electronic bank draft conversion can speed up the clearing process.

If there are insufficient funds in the account on which it’s drawn, the transit item will not clear. The funds will not be deposited as planned. In some cases, a bank may cash a transit item before it clears, but if it does not clear, the bank will debit the amount from the depositor’s account.

Automatic Clearing House (ACH) Transfers

An ACH transfer is an electronic bank-to-bank money transfer processed through the Automated Clearing House network. ACH transfers allow you to conveniently and securely send or receive money between accounts at different banks.

You may be using ACH transfers without realizing it. For example, direct deposit and paying bills online through your bank account are forms of ACH transfers. ACH transfers can also be used to make deposits into retirement accounts, brokerage accounts, or college savings accounts. Business owners can use ACH to pay vendors or receive payments from clients and customers.

In March 2021, ACH transfers volume reached a record 2.7 billion payments, the largest monthly volume in ACH Network history.

In March 2021, ACH transfers volume reached a record 2.7 billion payments, the largest monthly volume in ACH Network history.