There are numerous methods through which people transfer money to their loved ones or business vendors and clear out their pending payments. In earlier days, you had to visit the nearby bank or Western Union, submit an extensive application, and wait a few days to process the transaction, especially if it was across borders.
People have also used checks to transfer money for the longest time or send money through an acquaintance traveling, which comes with numerous security risks. However, with increased digitization and technological enhancements, you have an alternative and far more secure process today to transfer funds quickly through an electronic transfer of funds known as a wire transfer.
A wire transfer takes place through an extensive network that connects users from developed countries and is administered by financial institutions like banks and transfer services. Wire transfer enables you to transfer funds domestically or internationally in no time. Understanding wire transfer, especially as a beginner, may seem overwhelming initially.
We have compiled this beginner’s guide to understanding wire transfers so you can transfer your money in no time.
What Is A Wire Transfer?
A wire transfer is a computerized, cashless transaction that involves transferring money through one financial institution or another. These financial institutions can include banks, insurance providers, Moneygram, and Western Union. You don’t physically exchange cash; you share electronic data over the banking network.
You need your recipient’s destination address, such as the national ID number or the IBAN of the receiver. As a sender, you can choose between using cash as a payment method or transferring electronically to the receiver’s account at the remitting bank. International wire transfers are relatively quicker than other transitional cash-based mediums and take around two days to process. The Office of Foreign Assets Control scrutinizes each transaction during the processing time to ensure no involvement of fraud, terrorism, or money laundering.
Domestic VS. International Wire Transfer
Wire transfers can transfer money across borders or within the country. In a domestic wire transfer, the intended recipient resides in the same country as the sender. Therefore, domestic wire transfer is much cheaper and quicker in processing time than international wire transfer.
In contrast, an international wire transfer usually referred to as a remittance transfer, has a higher processing cost and is trickier than a domestic wire transfer. In developed countries, it typically takes three to five business days to process an international wire transfer.
To send an international wire transfer, you need to know the recipient’s IBAN, which consists of a two-letter country code. A select few businesses that provide international wire transfers additionally let you send money using the recipient’s national ID number or social security number in place of their IBAN.
Step-By-Step Wire Transfer Process
Wire transfers allow you to transact domestically or internationally on a secure network. Here is a step-by-step guide to how the wire transfers work for a sender:
- A sender uses cash or electronic transfer to send the money to the receiver. The sender has to provide their legal name and mailing address, contact number, and bank credentials. Details of the receiver, including their name, address, national ID number, and IBAN, are also required for the transaction.
- The sender’s bank issues clear and secure instructions to the bank or any other financial institution of the recipient, and the communication happens through a secured network. Most financial institutions use FedWire or CHIPS for domestic fund transfers within U.S. and SWIFT for international wire transfers.
- The transaction is scrutinized by various authorities to ensure that the transferred funds are white money. Banks wait for their approval before sending out a ready-to-be-collected message to the receiver.
- The bank account of the receiver gets access to the transferred funds. Banks proceed to settle the amount that was shared.
Pros Of Wire Transfers
Wire transfers are a modern alternative to traditional money transfer methods. Here are some significant benefits of wire transfer:
A wire transfer is a safer method of transferring money domestically or internationally. It is secure to send money through FedWire or SWIFT. This mode of money transfer is more secure as wire transfers get initiated through authorized personnel by your bank or your nonbank wire transfer service. Doing so promotes the confidentiality of both parties involved.
Alternative money transfer methods, like mailing checks, come with the threat of being misplaced. Checks also have the danger of being returned, while transferring money by wire is certain. Most funds transfer firms will provide you with a tracking ID to help you keep track of your money. This ability to track your money provides an extra security layer.
Wire transfers require less time to exchange money. Domestic transfers are completed as quickly as one day, while the usual processing time for international wire transfers ranges between two to five days. This quick processing time makes wire transfers an excellent alternative for those trying to clear their payments quickly or send cash to family members in an emergency.
A wire transfer allows you to send money to anyone, anywhere across the world. Each nation has access to wire transfer services, so neither the sender nor the recipient has to make a long journey to receive their money. Alongside that, wire transfers eliminate the hassle for the recipient of having to visit a money exchanger by converting the sent funds into the recipient’s currency.
Cons Of Wire Transfers
Although sending money via wire transfer is a trusted and practical method, there are various downsides. These include:
High Processing Fee
Wire transfer holds the sender responsible for the processing cost of this transaction. The average processing fee for wire transfers is a one-time payment of up to $30 for domestic transfers and $50 for international transactions.
This cost is usually insignificant for businesses processing substantial amounts, but it can act as a demotivator for individuals sending remittances home or small businesses clearing their payments. Therefore, you should only use a wire transfer if you send a sizable amount to avoid paying a hefty processing cost.
No Option For Cancellation
You cannot cancel a transaction after paying for it in person at a bank. The transaction goes through even if you mistakenly give the wrong recipient information or if the recipient no longer needs the cash transfer.
Fraud Or Scams
Even though a wire transfer is safe and hard to hack, a con artist can try to convince you to send them money. In wire fraud, the scammer impersonates a friend or relative to solicit money. Always validate any requests for money with the person you are sending it to. Never provide anyone your personal information, notably your transaction code, as scammers may use it to send money on your behalf.
A wire transfer is an ideal method to transfer money to a friend or family member, especially in cases of emergency or to pay down payments. In addition, international workers can use wire transfers to transfer money back home, and businesses can opt for wire transfers to pay their vendors across the globe. The core difference between domestic and international wire transfers is that of low or high processing fees and the processing time of the transaction.
Wire transfers are a relatively easy-to-understand and quick money transfer solution. Therefore, they are more appropriate for large payments, as the processing fee can be hefty. In addition, they provide a secure medium to ensure confidentiality and timely funds transfer.
The only downsides of a wire transfer are that there is no option for cancellation and that there are numerous scams in the industry. Therefore, it is essential to be vigilant while sharing your information to avoid getting involved in fraudulent activities.
Wire transfer is still a much better and more secure alternative to traditional money transfer methods, especially when processing large amounts of money, and is the future of money transference domestically and internationally.