Wire Transfer: What It Is And How To Send Money
UPDATED: Dec 18, 2022
We have so many ways to transfer money these days that sending it “by wire” sounds a bit antiquated. But, sending money via wire is a smart and secure way to transfer funds from your bank account to someone else’s. Let’s find out how it works and when and why you should consider this method.
What Is A Wire Transfer?
A wire transfer is a way to securely transfer funds electronically through a network that connects hundreds of banks and affiliated service agencies worldwide. To access the network, you would go to your bank either with cash or your account information and let them know how much you’d like to send to the recipient, along with their bank account number.
Typically one would wire money for a high-value transaction where you want to ensure a paper trail, such as for mortgage closing costs, a down payment on a house, or a car purchase.
How Does A Wire Transfer Work?
A bank wire transfer can be accomplished easily, swiftly, and, most of all, safely. Let’s walk through the steps you would take for a money transfer.
Process
Since wire transfers are completed electronically, you have to work within an established network of banks and transfer agencies that are all equipped to send and receive money interchangeably.
First, the sender will go to the bank, provide the banking information for both themselves and the recipient, and pay the fee for the wire transfer. The sending bank will initiate the transfer by transmitting a message that outlines the transaction through a secure system like SWIFT or Fedwire. The receiving financial institution knows the funds are on their way, so it puts “reserve funds” into the recipients’ account and then the banks take care of the transfer between themselves.
Domestic Vs. International Wiring
An international wire transfer is often used for people who are studying or traveling abroad. The main difference with a domestic wire is in the speed with which the transaction is completed. That’s because when you send a domestic wire transfer, it only has to go through the domestic Automated Clearing Houses (ACH). When you wire funds internationally, it will need to go through the foreign equivalent as well, which could take an extra day.
Cost
Costs vary for a wire transfer, but the median fee is $25 for domestic outgoing funds and $45 for international outgoing, although you may find cheaper fees online. If you’re using a bank wire transfer as part of a business transaction, you may be able to consider it as one of your itemized tax deductions. If you do frequent wire transfers, you might want to consider a bank account tier that includes them as part of your service.
Speed
A bank wire can take up to 2 days to process, although typically a domestic wire transfer is processed when it is received, which can be as soon as a few hours later. An international wire transfer is liable to take the full 2 business days because it has to be approved by both the domestic and foreign ACHs, as well as the fact that you may have to account for different time zones and even business day mismatches.
Potential Problems
Most wire transfers go through smoothly; however, occasionally one might be flagged to be investigated as part of the bank’s due diligence to ensure that funds aren’t being used for illegal activity. You also can’t wire money to areas that are under sanctions from the U.S. government.
Another important thing to note: Wire transfers cannot be reversed, so double-check all the information to ensure it’s going to the right person; even a mistype could send the funds into someone else’s hands.
How To Make A Wire Transfer
Ready to make a wire transfer? Fortunately it’s simple. Here’s what you need to know.
What You Need
You’ll need to have several pieces of information to initiate a wire transfer, so make sure you’re prepared. These include:
- Photo identification
- Your account number and routing number
- The recipient’s name, account number, sometimes known as a IBAN (International Bank Account Number) in other countries, and routing number, sometimes known as a SWIFT code or bank identification code (BIC)
- Adequate funds for the transfer
- Physical contact information for the recipient, like a mailing address
Where To Go
The easiest path might be to do the wire transfer online through your bank’s mobile app, or to can go into a local branch of your bank. (You may need to make an appointment.) There are options available for non-bank transfers, such as Western Union, which might be located in a local retail outlet. If you’re unsure where to go, call a local branch of your bank to find out; verify the fees they’ll charge and compare them with a local Western Union-type outlet if you choose.
When To Wire Money
While bank transfers seem “immediate,” there actually is some lag time involved while they are cleared. You’ll want to give yourself a day’s grace period and up to 2 days for international funds. Most banks have a cut-off time each day for when they they will process transfers, so make sure you plan accordingly. You also can’t wire funds on a weekend or bank holiday.
Keeping Your Wire Transfer Safe
While wire transfers are a safe way to send money, nothing is fool-proof, so conduct due diligence before using a wire transfer service. Here are some tips.
Use A Legitimate Service
A bank is a great option to safely transfer funds as you know it is legitimate. You also can consult another well-known service designed for that purpose, such as Western Union. If you’re unsure if the service is legitimate, you can check with your state’s banking regulator, often known as a Department of Financial Institutions (DFI).
Don't Transfer Funds To Strangers
Since the money is gone the minute you wire it, you want to make sure you’re sending it to a trusted entity. Make sure it’s someone you have met and that the reason they’re requesting it is legitimate.
Understand International Wiring Safety
The Office of Foreign Assets Control (OFAC) monitors international money wiring to make sure that the money isn’t being used to fund illegal activities. It also confirms you aren’t wiring money to areas that are considered threats to the national security, foreign policy, or economy of the United States.
Look Out For Scams
Scams involving wire transfer requests have proliferated. Beware of someone you don’t know who asks you to wire money to claim a prize or as a way to pay for goods you’re buying online as it’s quite likely the prize or the items might never arrive. Another common scheme is where someone sends you a check to buy something you’re selling or as payment for a service you have performed; then they pretend to accidentally make it out for a figure over the agreed-upon price and ask you to return the overpayment via wire transfer. When you cash the check, you’ll find it’s no good.
Verify the Information
If you’re transferring a large sum of money, such as a down payment, call to verify the directions if you receive them in an email. Wily hackers can alter information in the email – even if it’s from a trusted source – and redirect the funds to their own bank account, leaving you with no recourse.
Alternatives To The Wire Transfer
Wire transfers are just one option for sending money to someone. Here are some other possibilities and how they compare.
ACH
ACH is a direct deposit, but it’s not as “direct” as a wire transfer since it relies on a middleman (the clearing house) and can take several days, compared with same-day access for most wire transfers. However, it can be more affordable and more secure, since it can be reversed in a way that a wire transfer cannot. Some people may call this type of transaction an electronic funds transfer, or EFT, which is one type of ACH transfer.
Direct Deposit
Another option for domestic payments is direct deposit, which like an ACH will be cheaper, but slower than a wire transfer so isn’t useful when you need funds immediately.
Bank Transfer
Bank transfers can also be a cheaper alternative to a wire transfer. However, there can be limits to the amount of money you send and the number of transactions you can do each month, so if you exchange money frequently, the wire might work better.
P2P Payment Tools
P2P tools, which stands for “person to person,” are apps like Zelle, Venmo or PayPal that let you send money to someone you know for free. They’re best to use only for casual transactions since they won’t offer you a proof of payment like a wire transfer will. There also might be limits on the amount of money you can transfer with each transaction. In some cases, the app will charge a fee if you want the money immediately, which might make it on par with the cost of a wire transfer.
Checks
Why not just write a check? It’s certainly a valid option, although as a paper-based process, it’s not instantaneous. Also, many people balk at trying to cash a personal check, since there are lots of ways to defraud someone by using a fake check. Cashier's checks can be another valid option as they are guaranteed by the bank, although you still can’t be sure the person didn’t counterfeit them. A wire transfer is more secure than a check (and can’t be lost) and also faster. Most real estate transactions require wire transfers rather than checks these days.
Money Order
Finally, you may wonder if money orders are a good option. A money order operates much like a check, but it is more secure because they are prepaid so the funds are guaranteed … assuming the piece isn’t a counterfeit. A wire transfer will have a higher fee but can’t be faked like a money order could.
The Bottom Line: Wire Transfers Are One Of Many Options
While wire transfers are just one method of transferring funds, they can be a safe way to accomplish a transfer of a large sum of money since they go directly from bank to bank, which is why home closings are an ideal use of this technology. If you’re getting ready to dive into being a homeowner, be sure to check out other home buying resources that can make your process smooth.
Cathie Ericson
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