What Is a Wire Transfer?
A wire transfer is an electronic transfer of funds across a network administered by hundreds of banks or transfer service agencies around the world. The transfer can also be made in cash at a cash office.
Wire transfers allow for the individualized transmission of funds from single individuals or entities to others while still maintaining the efficiencies associated with the fast and secure movement of money.
Wire transfers allow people in different geographic locations to safely transfer money to locales and financial institutions around the globe.
- A wire transfer is a transfer of funds done electronically across a network of banks or transfer agencies around the world.
- Senders pay for the transaction at the remitting bank and provide the recipient's name, bank account number, and the amount transferred.
- Most wire transfers can take as long as two business days to process.
- International wire payments are monitored by the Office of Foreign Assets Control to ensure the money isn't being wired to terrorist groups or for money laundering purposes.
Understanding Wire Transfers
A wire transfer is used to transfer funds from one bank or financial institution to another. These transfers are considered remittance transfers under U.S. law. However, the term has also come to represent any electronic transfer of money from one person to another.
No physical money is transferred between banks or financial institutions when conducting a wire transfer. Instead, information is passed between banking institutions about the recipient, the bank receiving account number, and the amount transferred.
The sending bank sends a message to the recipient's bank with payment instructions through a secure system such as Fedwire or SWIFT.
The sender of a wire transfer first pays for the transaction up front at his bank. The recipient's bank receives all the necessary information from the initiating bank and deposits its own reserve funds into the correct account. The two banking institutions then settle the payment on the back end, after the money has been deposited. This is why no physical transfer is made during a wire transfer.
Nonbank wire transfers do not require bank account numbers. This is usually the case with transfers by companies like Western Union, whose international money transfer service is available in more than 200 countries.
Types of Wire Transfers and Associated Costs
All legitimate wire transfers take up to two days to process. If an electronic form of payment takes longer than a few days, it is not a true wire transfer. A domestic wire transfer is processed on the same day it is initiated and can be received within a few hours. International wire transfers are normally delivered within two business days.
The reason for the two different lead times comes from the use of domestic Automated Clearing Houses (ACH) and foreign processing systems. A domestic wire transfer only has to go through a domestic ACH and can be delivered within a day. International wire transfers must clear a domestic ACH and also its foreign equivalent, adding a day to the process.
Wire transfers cost money to initiate, regardless of whether they are domestic or international transfers. Some providers of domestic wire transfers charge as little as $25 per transaction, but the fee can be as high as $35 or more. International wire transfers sometimes have a higher fee—as much as $45.
Special Considerations: Wire Transfers and Security
Wire transfers are generally safe and secure, as long as you know the person who's receiving it. But each person involved in the transaction needs to prove their identity, so anonymous transfers are out of the question.
International wire transfers sent out of the United States are monitored by Office of Foreign Assets Control, an agency of the U.S. Treasury. This agency makes sure the money being sent overseas is not being used to fund terrorist activities, for money laundering purposes, or that it isn't going to countries that are the subject of sanctions by the U.S. government. If there is enough reason to suspect any of this, the sending bank has the authority to freeze the funds and stop the wire transfer from going through.
Wire transfers can raise alarm bells, alerting officials to possible wrongdoing by both the recipient and the sender in the following situations:
- Transfers to safe haven countries
- Transfers to non-account holders
- Regular transfers for no viable reason
- Incoming and outgoing wires with the same dollar amount
- Large amounts wired by cash businesses