BREAKING DOWN ‘Wire Transfer’
A wire transfer is used to transfer funds from one bank or financial institution to another. These transfers are considered remittance transfers under U.S. law. However, since the inception of wire transfers, the term has also come to represent any electronic transfer of money from one person to another.
No physical money is transferred between banks of financial institutions when conduction a wire transfer. Instead, information is passed between banking institutions regarding who the recipient is, what his bank account number is and how much money he is receiving. Nonbank wire transfers sometimes do not require bank account numbers.
The sender of a wore transfer first pays for the transaction up front at his bank. The recipient’s bank receives all the necessary information from the initiating bank and deposits its own reserve funds into the correct account. The two banking institution then settle the payment on the back end, after the money has been deposited. This is why no physical transfer is made during a wire transfer.
Types of wire transfers and associated costs
All legitimate wire transfers take two days or less to process, on average. If an electronic form of payment takes longer than a few days, it is not a true wire transfer. A domestic wire transfer is processed on the same day when it is initiated and can be received within a few hours. International wire transfers can be expected to be delivered within two business days.
The reason for the two different lead times comes from the use of domestic Automated Clearing Houses (ACH) and foreign processing systems. A domestic wire transfer only has to go through a domestic ACH and can be delivered within a day. International wire transfers must clear a domestic ACH and also its foreign equivalent, adding a day to the process.
Wire transfers cost money to initiate, regardless whether they are domestic or international transfers. Some providers of domestic wire transfers charge as little as $25 per transaction, but the fee can get as high as $35 or more. International wire transfers sometimes have a higher fee; it’s possible to pay upwards of $45 to initiate an international wire transfer.