A clearing account is a bank account that is used to hold funds temporarily. There are a number of reasons to use a clearing account and such accounts can be held by businesses, mortgage servicers, escrow companies, and other organizations that handle and process large amounts of money. Such accounts are handled differently from bank accounts maintained for long term deposits.
A common reason to create an account that will hold funds temporarily is for payroll management. Companies that use a payroll account do so to keep their primary accounts secure by ensuring that their bank account numbers are not released on their paychecks, and to help organize their payroll more effectively. Clearing accounts of this nature can work in several 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 business maintains a separate account for payroll and deposits the amount needed before issuing paychecks.
Clearing accounts are also used for accumulating monies over the course of an accounting period. Once the funds have all been accounted for, they can be transferred to other accounts. This can be helpful for certain bookkeeping practices and may also allow a company to track certain revenues and expenses more easily. These types of clearing accounts are used on a rolling basis to deposit funds before being emptied out with transfers to other accounts.
Accounts for holding funds can be seen in escrow, where funds are held until a deal is finalized and then released. This type of clearing account is overseen by an escrow agent, a neutral party in a transaction who verifies the completion of the transaction and transfers funds when the time comes. Such accounts can also be created for handling mortgages and other recurring payments. The person making the payments uses the clearing account for those payments only, making them easy to track.
When establishing a clearing account, people are not necessarily required to disclose the intended use to the bank, but it can be useful information to have. A banker may recommend a particular account product or provide options such as automatic transfers to prevent overdrafts if he or she knows why a new account is being opened. Banks will also be less likely to view activity as suspicious if they understand why the activity is occurring. Suspicious activity can result in a hold or freeze being place on the account so the bank can investigate, and this can interfere with the operation of the account.