What is a ‘Wire Transfer’

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BREAKING DOWN ‘Wire Transfer’

We use a wire transfer 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 or financial institutions when conducting a transfer. Instead, banking institutions pass information between them regarding who the recipient is, his bank account number, and how much money they receive. Nonbank transfers sometimes do not require bank account numbers. 

The wire transfer sender first pays for the transaction upfront at his bank. Then, the recipient’s bank receives all the information from the initiating bank and deposits its reserve funds into the correct account. The two banking institutions then settle the payment on the back end after they deposit the money. This is why there is no physical transfer. 

Types of wire transfers and associated costs

On average, all legitimate wire transfers take two days or less to process. If an electronic form of payment takes longer than a few days, it is not a true wire transfer. For example, As a domestic wire transfer gets processed the same day you initiate it, you typically receive the funds in hours. You can fully expect International wire transfers delivered within two business days.

The two different lead times come 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. However, 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 of 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; paying upwards of $45 to initiate an international wire transfer is possible. 

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