General

Everything You Need to Know About Wire Transfers

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When sending money internationally today, in many cases, you can simply transfer money through an app on your phone. This electronic transfer of funds is known as a wire transfer

A wire transfer is done over a vast network with which most individuals in the developed world are connected and is administered by banks and transfer services across the globe. You can do a transfer domestically and internationally. Keep reading to understand what this technology is, how it is done, and what benefits and risks are associated with it.

What Is a Wire Transfer?

A wire transfer refers to an electronic, cashless transfer of funds done through banks and non-bank service providers such as Western Union. This transfer involves no cash; instead, the electronic data is shared with the stakeholders and is settled accordingly.

When making a transfer, you need to know the destination address of your receiver. International wire transfer is done against the receiver’s IBAN or national ID card number. The sender can pay in cash or electronically through their account at the remitting bank. the process takes around two days to process, as they pass through checks by the Office of Foreign Assets Control to ensure the money isn’t going to finance terrorism or if it isn’t laundered money.

Domestic Wire Transfer

You can do a wire transfer domestically or internationally. In a domestic wire transfer, the intended recipient is a resident of your country. It  is cheaper than an international one and takes less time to process. Fedwire Fund Service and Clearing House Interbank Payment System (CHIPS) offer domestic transfer services in the United States.

International Wire Transfer

An international wire transfer is also known as a remittance transfer and is more complex than a domestic wire transfer. It can be processed in around three to five business days if the country has a developed banking system. An international wire transfer requires the recipient’s International Bank Account Number (IBAN), which consists of a two-letter country code, two check digits, and up to 35 alphanumeric characters specific to each country. These alphanumeric characters can include the Bank Identifier Code (BIC) – sometimes known as the SWIFT code – and the branch number followed by the recipient’s account number. Some services send money on the recipient’s national ID or social security number. 

How Does a Wire Transfer Work?

A wire transfer enables you to send money through a secure network. The entire process involves the following steps:

  • The sender pays in cash or through an electronic transfer of funds. They provide their details, such as their legal name and physical address, contact information, and bank information. They also provide the recipient’s details, including their name, address, national ID number, and IBAN
  • The bank at the sender’s end sends secure instructions to the recipient’s bank through a secure network. This network can be FedWire or CHIPS for a funds transfer within the United States and SWIFT for an international wire transfer 
  • The transaction is vetted by relevant authorities to ensure the reason for the wire transfer is legitimate. It may not be approved if there is any suspicion of terror financing or money laundering
  • The receiver’s bank account gets the funds from their bank account
  • The sender’s bank and the receiver’s bank eventually settle their funds

The Advantages of Wire Transfers

1. Security

A wire transfer is a more secure way to send and receive money than other financial transaction methods. Sending funds through FedWire or SWIFT is a relatively safe method; once the money gets to the recipient’s account, it’s there. While there have been instances of money getting lost , it is still more secure than other methods of funds transfer, such as mailing checks, which the postal service can lose. With checks, there is also a risk of them bouncing back, whereas a wire transfer is a sure way of sending money. You can track your funds through a tracking ID issued by most funds transfer services. This puts an additional layer of security as you get to know where your money is in real-time. 

2. Speed

A wire transfer is a fast way to get and receive money. A domestic transfer is processed in a single day, and you can get same-day cash. This advantage makes wire transfer an attractive option to send money to any relative who needs it immediately for any emergency. International wire transfers are also fast, with the receiver getting their money within three to five working days at worst. In most cases, the receiver can get the required funds within two business days!

3. Globe-Friendly

You can wire money to anyone, anywhere around the globe as long as they have an account to receive their money. Wire transfer services are available in every country; neither the sender nor the recipient needs to travel a long distance to get their funds. They also convert the sent money into the receiver’s currency and save the recipient from the hassle of going to a money exchanger.

The Disadvantages of Wire Transfers

While a wire transfer is a reliable and convenient method to transfer funds, there are some disadvantages and risks associated with the practice. These include:

1. Processing Fee

Wire transfers come with a processing fee that the sender pays. The receiver usually does not incur any processing costs. The wire transfer processing fee is a one-off, flat expense of up to $30 for a domestic and $50 for an international transfer. While this fee is negligible for firms wiring a large sum, it can be unaffordable for those who send remittances back home. To avoid a high processing fee, make a wire transfer only when you wire a significant sum.

2. Transaction Cannot Be Canceled

Once you go to a bank and pay for your transaction, you cannot take it back later. After you initiate a funds transfer, the transaction cannot be canceled. This can cause a massive problem if you accidentally provide the wrong recipient details or the receiver no longer needs the funds transfer. 

3. Potential of Scams

While a wire transfer is secure and difficult to hack, there is a potential that a scammer can try to get you to send them money. Wire fraud involves the scammer posing as your friend or relative and requesting funds. Always confirm with your intended recipient if they asked for any funds. Do not share your personal information, especially your transaction code, with anyone, as scammers can use this information to wire money on your behalf.

4. Transaction Cannot Be Scheduled

Wire transfers are a one-off money transfer. The funds you transfer to anyone will be deposited in their account immediately: you cannot have the money released episodically. If you are an international worker sending remittances back home, you probably need to do a transfer every month. However, you cannot schedule a transfer automatically every month. You will have to go to the transfer service every few weeks to transfer funds.

Wire Transfer vs Other Means of Funds Transfer

One popular method of electronically sending funds is the ACH bank transfer. ACH bank transfers are digital interbank money transfers over the Automated Clearing House network. They are a popular means of sending money, but are suited to small transactions that aren’t time sensitive, as they take longer to be processed than wire transfers; up to three days in most costs. In contrast, domestic transfers take only a day. An ACH transfer is available only in the United States; you cannot make an ACH payment internationally.  However, ACH payments are less expensive than wire transfers and ideal if you need to pay in bulk. Wire transfers are best suited for if you need to do a cross-border transaction urgently. 

Another common way to transfer money is by writing a check. However, checks are less secure – they can easily be lost and can also bounce back if the recipient tries to cash the check when your account does not have sufficient funds. On the other hand, a wire transfer is secure and requires you to make pre-emptive payments, so it cannot be bounced back. However, checks have one significant advantage over wire transfers: it is difficult to figure out who your wire payment came from, especially if you are expecting several wires. With checks, you easily know who sent you funds – managing your checks is far easier than managing your wires. Checks are an old fashioned way of transferring money and everyone is familiar with them. Wire transfers are not as universal and some individuals may find checks more convenient.

Endnote

You can use a wire transfer to make down payments, make business purchases, or just send money to a friend or relative in need. International workers often use this service to send remittances back to their home country.

Wire transfers are easy, fast, and secure. Whether it is a domestic transfer or an international one, the receiver gets money quicker compared to other methods of funds transfer. However, they have a processing fee, so they are suited for large payments, and once a funds transfer is initiated, it cannot be undone.

If you need to urgently make a cross-border payment of a large sum of money, a wire transfer is your best answer.

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