A clearing account is a temporary bank account used by businesses, mortgage servicers, and escrow companies to hold funds for various reasons, such as payroll management, accounting practices, and escrow transactions. The use of such accounts can help with organization and tracking of income and expenses. It is not necessary to disclose the intended use of the account to the bank, but it can be useful information for better account management.
A clearing account is a bank account used to temporarily hold funds. There are various reasons for using a clearing account, and such accounts may be maintained by businesses, mortgage servicers, escrow companies, and other organizations that handle and process large amounts of money. Such accounts are handled differently than bank accounts held for long-term deposits.
A common reason to create an account that will temporarily hold funds is for payroll management. Companies that use a payroll account do so to keep their primary accounts secure by ensuring their bank account numbers don’t get released in their paychecks and to help organize their payroll more effectively. Account clearing of this nature can work in a number of ways. Some banks allow businesses to maintain zero-sum payroll accounts, with funds transferred automatically as needed when paychecks are deposited. In other cases, a company maintains a separate account for payroll and deposits the necessary amount before issuing paychecks.
Clearing accounts are also used to accumulate money over the course of an accounting period. Once all the funds have been accounted for, they can be transferred to other accounts. This can be useful for certain accounting practices and can also allow a business to track certain income and expenses more easily. These types of clearing accounts are used on an ongoing basis to deposit funds before being emptied with transfers to other accounts.
Accounts to hold funds can be viewed in escrow, where funds are held until an agreement is finalized and then released. This type of clearing account is overseen by an escrow agent, a neutral party to a transaction who verifies the completion of the transaction and transfers funds when the time comes. Such accounts can also be created to handle mortgages and other recurring payments. The person making the payments uses the clearing account only for those payments, making them easy to track.
When establishing a clearing account, individuals are not necessarily required to disclose their intended use to the bank, but it can be useful information. A banker may recommend a particular account product or provide options such as automatic transfers to prevent overdrafts if they know why you are opening a new account. Banks will also be less likely to view activity as suspicious if they understand why the activity is occurring. Suspicious activity may result in a hold or freeze on the account for the bank to investigate, and this may interfere with the operation of the account.
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