What Is a Wire Transfer?
Wire transfer is basically an electronic transfer of funds. This method of transaction is monitored by banks and transfer service agencies such as Fedwire Funds Service (Fedwire for short) or Society for Worldwide Interbank Financial Telecommunication (SWIFT). These networks let you to wire money both internationally and domestically. All in all, wire transfer is a reliable method to send money effectively.
Wire transfers are typically used for transacting large sums of money, but they can be used for moving smaller amounts as well. According to the Bank Secrecy Act (BSA), transfers exceeding $10,000 should be reported. Businesses must submit a Currency Transaction Report for such transactions to the Financial Crimes Enforcement Network (FinCEN). If a financial institution fails to report, it may have to face severe consequences. They may have to pay from $25,000 up to $100,000 depending on the seriousness of the violation.
How to Do a Wire Transfer?
As the most reliable fund transaction method available today, understanding how wire transfers work are crucial. Below are the most effective steps that must be carried out while making a wire transfer:
- Select a Wire Transfer Provider
You should decide which service you want to use for wire transfer. Available service providers are bank transfers and non-bank transfers. Depending on the bank and its policies for wire transfers, a bank transfer provider may allow you to initiate transfers online or in person. Alternatively, non-bank transfer companies like Western Union or MoneyGram allow you to send money directly to a bank account via wire transfer, and the person to whom you are sending money can either receive it as cash or send it to a mobile payment app.
- Provide The Essential Details
You should gather all the relevant information before initiating a wire transfer. These include:
- A copy of your government-issued ID.
- Recipient Information – The recipient’s name, bank account number, and contact number are required to facilitate the transaction.
- Banking Information – Get the name and address of the recipient’s bank to make sure the funds reach the correct financial institution.
- Routing Number or SWIFT/BIC Code – If you are doing a domestic wire transfer, you will need the bank’s routing number. It is a nine-digit number that identifies a bank or financial institution while clearing checks or electronic transfers. For international wire transfers, you will need a SWIFT/BIC Code. It is used to identify banks or financial institutions globally.
- Specify the amount you want to transfer – For international transactions, you should indicate the currency type as it requires currency conversion.
Always double-check all the information provided before sending a wire transfer to ensure that the money is going to the right place.
- Review the Terms and Conditions
You will have to pay a fee regardless of whether you are using a bank or non-bank provider for wire transfers. The fee will be deducted automatically along with the transferred amount if you are doing a wire transfer through a bank account. Most banks charge fees between $0 and $50, which can vary based on the account. For example, major banks like Bank of America, Capital One, and Wells Fargo mostly charge $15 for incoming domestic wire transfers and $25 to $40 for outgoing domestic wire transfers. If you are using a non-bank provider, the fee will be charged depending on how you pay like bank account, credit card, or debit card.
Request a fee schedule in advance to your provider if you are uncertain about the costs regarding wire transfers. Then, you may compare these fees with other providers to see which cost less. Also, you should review all the documents and make sure you understand the agreement before submitting them.
Types of Wire Transfers:
Depending on where the transaction originates and where its destination is, there are two types of wire transfers: International and Domestic.
- International wire transfers
As the name suggests, these are wire transactions done internationally. That is, they are initiated in one country and completed in another country. To begin an international wire transfer, you will need specific information, such as the recipient’s bank account details, the receiving bank’s name, and the SWIFT code. An international wire transfer typically takes three to five business days to reach the recipient’s bank account, while it leaves the sender’s account within the same day. International wire transfers from the US are monitored and controlled by the Office of Foreign Assets Control. This agency checks whether your transaction has any connection with illegal activities, such as terrorism. To avoid this, you must report any transaction that exceeds $10,000 to the IRS.
Here, both the sender as well as the receiver have to pay fees, including currency exchange fees. A recent study of 40 major US financial institutions shows that the average outgoing international wire transfer fee was $45, and the average cost while receiving money was found to be $13. The currency exchange rate depends on the foreign exchange rate between the two currencies. You can also choose a forward contract, which means you can lock the current exchange rate for up to 12 months and pay whenever within this period at the exchange rate you locked. Another option is to set a limit order; that is, you can set an exchange rate at which you wish to proceed with your transaction, and the transfer service will carry out the transaction when the rate is available. However, limit orders often come with high minimum transaction amounts.
Intra-bank: These are transfers between the same banks of different countries or between a bank and its account in a foreign bank, such as Nostro Accounts. The SWIFT network is the network employed by the banks while making these transactions. This means that the bank can make the transaction without depending on an intermediary bank.
Inter-bank: These are transfers between different banks of different countries. These banks require an intermediary bank to proceed with their transaction. While making this transaction, the payment must follow the rules and regulations of the sender’s country, the recipient’s country, as well as the intermediary bank. These additional requirements in inter-bank transactions make them slower than intra-bank transfers. Interbank transfers use different networks depending on the location of the banks involved. For instance, the ACH network is used for transactions in Canada and the US.
- Domestic wire transfer
Domestic wire transfers are done when you want to send money within the same country. You may efficiently transfer money from one bank account to another in the same country through domestic wire transfer. To initiate a domestic wire transfer, senders will need the recipient’s routing number, bank account number, and contact information. You can initiate a wire transfer over the phone or by using a banking app.
These transactions can be processed on the same day they were initiated. This is because, unlike international wire transfers, domestic transfers will only go through a domestic automated clearing house (ACH). However, sometimes it may take 2-3 business days.
How Long Does a Wire Transfer Take?
Domestic Wire Transfers: Generally, it will take 1-3 days to complete a domestic wire transfer. You may be able to complete the transfer within 24 hours if you are sending the money from your bank to an account in the same financial institution. When you are sending large checks or deposits, it may take up to 10 days to clear.
International Wire Transfers: International payments usually take longer time than domestic payments. They may take 3-5 days to reach the recipient and sometimes even longer than expected. Even when it reaches the recipient’s bank, it may take time to process the transaction as there is a change in the currency. An international wire transfer can maximum take up to three weeks for larger transaction.
Delays may also come due to human error in the transaction, public holidays, and location-specific reasons. On weekends, you can initiate a wire transfer, but it will not be processed until the next business day. For instance, in the US, if you initiate a transfer on Sunday, it will be processed only on the next business day, that is, Monday.
Alternatives to Wire Transfers
ACH transfers: These are methods of payment that are constantly guided and monitored by NACHA. Compared to wire transfers, ACH transfers typically cost less, but they might take greater time to deliver. Moreover, since ACH transfers are often batched together, they are commonly used for bill payments, payroll, or tax refunds. They can also be used for one-time transactions. Wire transfers can be used for international and domestic transfers; on the other hand, ACH transfers can only be made domestically. The transaction limit of an ACH is also lower than a wire transfer. In most cases, wire transfers cannot be stopped or reversed if any mistakes happen once the transfer is approved. So, you may have to be extremely alert while making a wire transfer. However, ACH transfers offer various ways to stop, reverse, or cancel a payment on occasion when duplicate payments or errors occur.
Peer-to-peer financial services: Peer-to-peer financial services like Venmo, Zelle, Payoneer, Wise, and more serve as alternatives to wire transfers. Venmo and Zelle are ideal for domestic transfers, whereas Payoneer and Wise are ideal for international transfers. Venmo, primarily used in the US, is popular for its ease of use and social features, making it an effective method to send money quickly. Zelle, another US-focused service, makes it possible to transact money between bank accounts instantly and securely. Payoneer is a global platform that is ideal for businesses and freelancers looking for effective methods to send and receive money internationally. They support various currencies as well as offer various withdrawal options. Wise, previously known as TransWise, is best known for offering the lowest fees for international transactions.
Checks and money orders: Before the advent of digitalized payments, physical checks delivered by mail and money orders were the major alternatives to wire transfers. In contrast to wire transfers, checks, and money orders often demand greater processing time. However, they are cheaper than wire transfers. Checks are usually used for making regular payments, and money orders are used for sending smaller amounts. Alternatively, wire transfers are used for making bulk or urgent payments.
Closing Remarks:
Wire transfers are an effective way to transfer money electronically within the same country and across different countries. They offer quick and secure transfers between bank accounts and are the most preferred way, especially when it comes to large transactions. You can transfer money usually within the same business day when it comes to domestic money transfers. However, international money transfers may take several business days as they require currency conversion and intermediatory banks to complete transactions.