The electronic transfer of funds between people or entities
What is a Wire Transfer?
A wire transfer is the electronic transfer of funds between people or entities. It allows people in distant locations around the globe to safely transfer money across geographical locations without being in physical contact with each other.
When sending money via wire transfers, information is passed between two banks on the recipient’s identity, their account number, and the amount of money that the person is due to receive.
The person initiating the transaction must usually pay a transaction fee before the bank will wire the funds to the other party. Once the information is passed to the recipient’s bank, the bank deposits its reserve funds to the recipient’s account, and the two institutions settle the payments on the back end after the receiver has received the funds. There is no physical exchange of funds.
How Does a Wire Transfer Work?
The person or entity wishing to make a wire transfer first approaches a banking institution and directs them to transfer a specific amount of money. The sender provides the SWIFT or IBAN and BIC codes of the recipient so that the bank knows where the money is to be sent.
Before the transaction can be initiated, the sender must deposit the money to be sent and a transaction fee that is determined by the sending bank. The sending bank then transmits a message via a secure system like SWIFT or FedWire to clear the funds.
Once the funds are cleared, the recipient’s bank receives the message requesting it to execute the payment according to the instructions provided. The funds may take several hours or days to get to the recipient’s account from the time the sender initiated the transaction. Either of the banks must hold a reciprocal account with each other to settle the payment.
Uses of Wire Transfer
The following are some of the ways that you can use wire transfer:
1. To wire money
The person wiring funds to a recipient must first obtain “wire instructions” from the recipient. The recipient can get the wire instructions from the banking institution where they expect to receive the money.
The sender will then submit the instructions to their bank, alongside the money to be sent and the transaction fee. The bank will then request the sender to fill out the wire transfer form or provide an online form that the sender can access and fill out.
2. To receive money
To receive funds via wire transfer, the recipient will need to provide their bank account information to the sender and the “incoming wire instructions” that are provided by the receiving bank. When the information is sent to the sender, the sender’s bank will initiate the transaction and send the funds.
The funds will typically be transferred within one day, depending on whether the transaction is domestic or international. The recipient’s bank will deduct a transaction fee from the received funds.
Types of Wire Transfers and Associated Costs
There are two types of wire transfers – domestic and international. Each of these wire transfer types varies in cost and delivery times. Domestic wire transfers get processed within the same day. Wire transfers within the United States are charged approximately $25 per transaction, but the fee can go as high as $35, depending on the banking institution.
On the other hand, international wire transfers must be cleared by a United States clearinghouse and at least one foreign country’s processing system, which prolongs the processing time to several days. Individuals and entities use this technique to transfer large volumes of money in a foreign currency.
International wire transfers cost about $43 to send money from the United States to another country. The recipient’s bank deducts about $8 to $10 from the amount of money wired to the recipient. Some banks may impose some hidden costs above the transaction fee that they charge.
How Safe is a Wire Transfer?
There are concerns about the safety of online money transfers due to the rising number of bank fraud cases. Wire transfers are made from one bank to another, before being deposited in the recipient’s account. In the United States, federal regulations require individuals to verify their identity and provide their physical address in order to open an account and use the wire transfer service. It makes it nearly impossible to transfer funds anonymously and prevents cases of wire transfer scams.
The biggest risk comes when scammers take control of another person’s bank account and manage to withdraw cash or re-route the funds to another account. In such scenarios, account holders may be unable to recover their funds unless they report the cases early enough before the scammers execute their plans.
Additional Resources
CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful:
FAQs
A wire transfer is a method of transmitting money electronically between people or businesses in which no physical money is exchanged. The sender is the one who provides all the instructions for the transfer, which may include the recipient's name, bank, account number, amount, and sometimes a pickup location.
How does a wire transfer work? ›
The sending bank sends a message to the recipient's bank with payment instructions through a secure system, such as Fedwire or SWIFT. The recipient's bank receives all the necessary information from the initiating bank and deposits its own reserve funds into the correct account.
Is Zelle considered a wire transfer? ›
Zelle isn't considered a wire transfer. Wires are used for large payments between bank accounts, such as the down payment on a new home – and you can send a wire transfer in the US or overseas. In comparison, Zelle is an ACH.
How long does a wire transfer take from bank to bank? ›
Domestic wire transfer: Due to EFAA regulations, most bank-to-bank wire transfers between accounts in the US are completed within 24 hours. Some banks make wired funds available to recipients immediately, especially on transfers between accounts at the same institution.
What is the difference between a bank transfer and a wire transfer? ›
Wire transfers are electronic transfers that allow you to send money directly from one bank account to another. These transfers can be done locally or internationally and typically occur within the same business day. Bank transfers are a more general term for any funds transfer between bank accounts.
What are the disadvantages of wire transfer? ›
Wire transfer disadvantages include the following:
Funds must be available in sender's account before bank sends funds because the bank immediately removes funds to process the request. If using a credit card, cost will be significantly higher due to interest rates and cash advance fees.
How much money can you wire transfer? ›
A wire transfer is an electronic transaction that allows you to quickly send a large amount of money. Other money-transferring services limit how much money you can transmit, but wire transfers allow you to send more than $10,000. Wire transfers deliver funds to the recipient's bank account.
Should I use ACH or wire transfer? ›
A wire transfer is typically used for high-value transactions and is completed through a bank, which makes it faster, but it does have a fee. An ACH transfer is the best to use for smaller transactions that aren't time-sensitive, since they can take longer to process but are usually free.
How much does a bank charge for a wire transfer? ›
In general, when it comes to wire transfers, you can expect fees in the region of $15 - $30. Yet there are exceptions, as some institutions offer fee-free wire transfers and others charge more than $30.
How safe are wire transfers? ›
Are Wire Transfers a Safe Way to Send Money? Wire transfers are a secure and reliable way to send money. They offer the convenience of transferring funds quickly, securely, and with minimal fees. With wire transfers, you can move large amounts of money from one bank account to another.
Under the Bank Secrecy Act (BSA) of 1970, financial institutions are required to report certain transactions to the IRS. This includes wire transfers over $10,000, which are subject to reporting under the Currency and Foreign Transactions Reporting Act (31 U.S.C.
Is a wire transfer available immediately? ›
While most banks will process funds within 24 hours, it could be a day or two before they arrive in the recipient's account. Most banks will advise 24 to 72 hours before funds land and are available.
What is an example of a wire transfer? ›
Wire Transfer Example
You go to your bank and provide the recipient's name, bank, account information, and any other information your bank requests. The bank deducts $42,000 from your money market savings account and wires it to the recipient's bank. The bank charges you a $35 fee for the transfer.
Why would someone use a wire transfer? ›
You need to move large amounts of money.
For this reason, wire transfers are often used to pay invoices, to send funds among family, or for real estate transactions.
What information is needed for a wire transfer? ›
To send a wire transfer by bank, you will typically be asked to provide the following information:
- Recipient full name.
- Sender full name.
- Recipient phone number.
- Sender phone number.
- Recipient address.
- Recipient bank name and information.
- Recipient checking account information.
Nope! Whenever you receive a payment on Venmo, that money is put into your Venmo account. You'll need to initiate a bank transfer to send the funds to your bank account. You can send the money in your Venmo account to your bank using the Standard or Instant method.
How do you get paid by wire transfer? ›
A wire transfer is a method of transmitting money electronically between people or businesses in which no physical money is exchanged. The sender is the one who provides all the instructions for the transfer, which may include the recipient's name, bank, account number, amount, and sometimes a pickup location.
How reliable is a wire transfer? ›
In short, yes, wire transfers are very safe. Security lies in encryption technology, which encrypts all data sent over the internet during transmission. This ensures that only authorized parties can access your personal information while it's being transferred from one place to another.
Will a wire transfer be instant? ›
Domestic wire transfers are incredibly fast. Most times, you can expect to see funds landed within 24 hours. This is because domestic wire transfers tend to process same-day, with landed funds arriving next day as the bank opens.
How do I receive a wire transfer from someone? ›
In order for you (the recipient) to receive the funds, the sender needs to know:
- Your full name, as it appears on the account.
- Your full account number.
- For domestic wires, your routing number.
- For international wires, they need to use a Swift Code instead of the routing number. ...
- The address for incoming wire transfers is:
