What is a Wire Transfer?

Today, there are different options for executing your transfer when you wish to fund an account. We have cheques, mobile money transfer apps, as well as electronic transfers, which are done digitally. Most people who prioritize convenience, simplicity, and speed use wire transfers to execute their payments.

Wire transfers have become one of the most used methods of transfers today, and rightfully so due to several reasons. However, what is a wire transfer and how does it facilitate speed and convenience? Let's find out.

What Is a Wire Transfer?

A wire transfer is the electronic/digital transfer of money through a network that is provided by banks and other transfer service agents all over the world. Essentially, wire transfers involve sending and receiving financial institutions and need information from the person initiating the transfer. The primary information needed for this process is the receiver's bank account name and account number. Generally, wire transfers don't involve the exchange of physical cash, as all transactions are settled electronically.

Understanding Wire Transfers

Wire transfers, which are also called wire payments, permit funds to be sent fast and securely without any need to exchange physical cash. Essentially, they authorize two individuals to safely transfer and receive money even if they live in different (geographic) locations. Usually, a transfer will be initiated from one financial institution to another one. Instead of cash, the two participating financial institutions will share details about the recipient, the receiving bank account number, as well as the amount transferred.

The sender usually pays for the cost of the transaction upfront at their own bank. Usually, the sender has to provide their bank with this information:

• The receiver's name, contact number, address, alongside any other important personal information needed to facilitate the transfer
• The receiver's banking information. This includes their bank account number and the bank branch number
• The receiving bank's details, which include the financial institution's name, address, as well as the bank identifier (SWIFT code or routing number)
• The motive for the transfer

Once the information gets documented by the sender’s bank, the wire transfer will begin. The initiating bank will send a message to the recipient's bank with the payment instructions via a protected system, such as SWIFT or Fedwire. The recipient's bank/financial institution will then receive the payment information from the sender’s bank and deposit its own budget funds into the applicable account. Both financial institutions will then settle the payment between themselves after the funds have been deposited.

Essentially, wire transfers are extremely important tools for people who need to send funds quickly and securely, particularly when the sender and receiver aren't in the same location. Also, they allow companies to send a large amount of money. For instance, companies pay employees' salaries, purchase inventories, and pay utility bills via wire transfer.

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How Does a Wire Transfer Work?

A wire transfer, which is a kind of electronic or digital transfer of money between banks/financial institutions, works as follows:

• The sender’s bank collects details about the wire transfer amount, the sender and recipient’s basic information (including their legal names, physical addresses, country, contact information, bank, bank branch, routing number, SWIFT or BIC code, bank account number, or the IBAN), and motive for the transaction.
• The sender will then pay the cost of the wire transfer to their financial institution before the wire transfer begins and gets sent to the receiver.
• The sender’s bank will then provide the wire instructions via a secure and protected wire transfer network. This network will disseminate the wire transfer instructions to the recipient’s bank and intermediary banks (if any). Secure wire transfer networks include CHIPS or Fedwire (for domestic transactions) and SWIFT (for international transactions).
• The recipient’s bank account will then receive money for the wire transfer from their bank. This means that the recipient’s bank sends funds to the recipient’s account based on the instructions sent from the sender’s bank.
• The sending and receiving banks resolve the wire transfer transaction at the end of the day.

Wire transfers can be initiated through online banking platforms, in-person at your bank, via a mobile app, or via a money transfer company online or at their physical company location.

What are the Types of Wire Transfers?

There are primarily two types of wire transfers. They are domestic and international wire transfers. Learn more about these two types of wire transfers below:

1. Domestic Wire Transfers

Essentially, a domestic wire transfer is a type of wire payment that occurs between two distinct banks or financial institutions within a country. Senders may be asked to provide a code or the receiver's bank branch number if they wish to execute a domestic wire transfer transaction.

These transactions are typically processed on the same day senders initiate them and can easily be received within just a few hours. This is because a domestic wire transfer just has to pass through a country's domestic automated clearing house (ACH) and can easily be delivered within one day.

2. International Wire Transfers

International wire transfers are electronic transfers initiated in one country and settled in another country entirely. Senders have to initiate international transfers whenever they send funds to someone living in another country, even if the recipient has an account with the same bank. International wire transfer payments generally need a routing number or SWIFT code.

This type of wire transfer is generally delivered within about two to three business days. The extra one/two days are needed because international wire transfers must clear both a domestic ACH and its foreign equivalent.

What Information is Needed to Make a Wire Transfer?

The information required to initiate a wire transfer largely depends on whether you are initiating a domestic or international transfer. These types of transactions go through various wire transfer networks.

1. Information For Domestic Wire Transfer

If you want to send a domestic wire transfer from a bank or financial institution, you’ll need this important information:

• Name of both the sending and receiving financial institution
• Applicable bank branch
• Name of the sender
• Bank account number of the recipient
• Name of the recipient (as per a government-issued ID)
• The physical address of the intended recipient
• Phone numbers of both sender and receiver
• Bank routing number (or ABA number) for wires
• Amount of money for the wire transfer

The recipient is also called the beneficiary and their bank account detail is usually referred to as the beneficiary account.

2. Information For International Wire Transfer

If you want to send a domestic wire transfer from a bank or financial institution, you’ll need this important information:

• Name of both the sending and receiving bank or financial institution
• Applicable bank branch
• Country of the intended recipient
• Name of the sender
• Name of the recipient (recipient’s name)
• Phone numbers of both sender and receiver
• The physical address of the intended recipient
• SWIFT/BIC code or thrnIBAN (international bank account number)
• The total amount of the wire transfer
• Purpose of the wire transfer transaction

What are the Risks Associated With Wire Transfers?

Wire transfers are typically considered safe and secure, as long as you personally know the recipient who's receiving them. If you make use of a legitimate wire transfer service provider, each person involved in the wire transfer will be instructed to verify their identity. This makes it impossible to execute anonymous transfers.

One of the risks associated with wire transfers is fraud. In recent years, it is common to hear about criminals intercepting different emails and putting in their own bank account details, to which the susceptible client then transfers the money.

Also, wire transfers are considered problematic because once they have been sent to the system, they cannot be recalled or reversed. This means that once your wire transfer process gets initiated by your bank, it cannot be reversed, even if there is an error. Hence, you must cross-check every detail you provide before you initiate the transaction.

Wire transfers may also be flagged for different reasons, warning the bank’s officials of any possible misconduct by either the sender or recipient in the case of:

• Transfers to safe-haven countries
• Transfers to other non-account holders
• Regular transfers for no conceivable reason
• Large amounts of money wired by cash businesses

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What are the Advantages and Disadvantages of Wire Transfers?

Wire transfers offer you a convenient and easy way to send funds and pay bills to a receiver who uses a different bank. Nowadays, international wire transfers now take just a few days to settle, while domestic wire transfers settle on the same day. So it is a fast way to send and receive money.

Also, unlike mailed cheques, wire transfers are unlikely to get lost in the mailbox. They are also considered very reliable: While cheques may bounce, a wire transfer will only be commenced if the sender has sufficient money in their bank account.

Additionally, wire transfers allow senders to quickly initiate a transfer transaction and the receiver can access the money immediately. Receiving the funds is instant for the recipient.

However, there are certain drawbacks to wire transfers. Banks usually charge people a flat price for wire transfers, which can vary between $15 to $50. This cost can gobble a very large percentage of the total amount of money to be transferred, especially for quite smaller transactions. In addition, some financial institutions/banks set a limit on the amount of money that can be wired in one day. Here are some pros and cons of wire transfers:

Pros

• Fast settlement, even across different borders.
• Cannot be bounced (like cheques) or held due to insufficient funds.

Cons

• Bank fees make wires unusable for some amounts of money.
• Banks may set a limit on the maximum amount of transfer.
• Alternative payment methods may even be faster and cheaper than wire transfers.

What are Some Other Options to Wire Transfers?

Before the evolution of computer networks, the major alternative to regular wire transfers was to simply mail a money order or physical cheque. This had apparent disadvantages since your cheques or money order could sometimes get lost in the mail or delayed in transit. Even though it is also possible for people to pay by debit and credit over the phone, this payment method was extremely vulnerable to credit card theft.

If the fund is not needed by the recipient immediately, it is also possible for you to send payments via the Automated Clearing House, or ACH. The ACH is an electronic network that is run by the National Automated Clearing House Association. ACH transfers are usually batched together and are often used to settle payroll, bill payments, or tax refunds. However, they can still be used to execute one-time transactions.

Following the general use of the internet, innovations in financial technology have created new and better ways to transfer money. There are remittance service providers such as SanaTransfer that can help you to make cheaper international wire transfers.

How Safe Are Wire Transfers?

A wire transfer is generally safe and very secure, as long as you know the recipient. A legitimate wire transfer service provider will verify the identity of each party involved in a wire transaction.

How Long Does a Wire Transfer Take?

Domestic bank wires can take between one to two days to get completed. However, they are generally much faster if the recipient uses the same financial institution as the sender. International wires may take up to five working days to get completed. However, note that human error and some other factors can sometimes result in delays, in extreme situations of up to about three weeks.

What Fees Are Associated with Wire Transfers?

Wire transfer fees include the costs charged to the sender by their bank, intermediary bank fees (for only international wires), and the receiving bank fees. Other fees can be incurred if the transfer gets complicated. They include lost wire transfer inquiry  fees, wrong bank account reversal fees, miscellaneous fees, and foreign currency conversion rates fees (at varying exchange rates for international wire transfers)

When Should You Use a Wire Transfer?

Use a wire transfer for payment when you need to transfer a huge sum of money and can pay for the cost of a wire transfer. Also, you should consider if you know the recipient well enough, have decided that it’s the most reasonable way to transfer funds for a specific purpose, and believe that the wire transfer can easily be obtained within the stipulated time requirements.

Wrapping Up

So, what is a wire transfer? It is simply sending money between two parties electronically. Although wires are considered extremely safe and secure, they can be very pricey, especially when done internationally. Fortunately, developments in fintech have provided better alternatives to regular bank international wire transfers. Remittance apps like SanaTransfer make it possible to initiate wire transfers from Canada to over 70 countries globally.

SanaTransfer offers easy, fast and secure payment services with better rates and faster payouts for international remittance. Sign up now to get started.

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