Wire transfers 101: What they are, how to initiate them, and best alternatives
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If your business has ever initiated a financial transaction, odds are you've come across the term bank wire transfer. Wire transfers are one of several electronic transfer methods of B2B payments.
In this guide, you'll learn what wire transfers are, along with the following:
What is a wire transfer?
A wire transfer is an electronic method of transferring money from one financial institution to another. Separate electronic networks govern wire transfer protocols in different regions worldwide. For instance, wire transfers in the United States are executed either through the US Federal Reserve Bank's Fedwire system or the Clearing House Interbank System (CHIPS.)
Domestic wires are settled in real-time (called real-time gross settlement or RTGS,) or in batches based on a net settlement period. International wire transfers (denominated in a foreign currency) typically take two to three business days to settle.
Is a wire transfer the same as a bank transfer?
Wire transfers are the same as bank transfers. Wire and bank transfers are electronic methods of transferring money from one bank account to another. For example, Automated Clearing House or ACH transfers are a form of domestic wire transfer, despite working on a different network.
ACH payments work on a separate electronic network, governed by an organization called the National Clearing House Association (NACHA.) ACH payments are limited to the United States and Puerto Rico.
Banks will charge you separate fees for executing different types of wire transfers, which we'll dive into shortly.
Types of wire transfers
There are two types of wire transfers:
Are there any transaction limits to wire transfers?
While governments do not impose limits on wire transfer transactions, individual banks will. Wire transfer limits depend on a bank's risk assessment and compliance policies. For instance, Chase limits individuals to $100,000 per wire transfer transaction and offers businesses higher limits on request.
Citi imposes limits of $10,000 to $20,000 per transaction but allows multiple transactions daily. Fidelity allows unlimited transactions with a limit of $100,000 per transaction and up to $250,000 daily. Contact your bank to check whether they impose any wire transfer limits.
Note that many banks impose limits based on the recipient's location. For instance, money transfers to high-risk countries will attract different limits than those considered low-risk. Tax havens such as Panama and the United Arab Emirates are examples of countries deemed high-risk by banks.
Are wire transfers safe?
Wire transfer services are encrypted to the highest standards and are very secure. North American banks and banks sending money to North America send international wire transfer messages using SWIFT's MT system. This messaging template lists the identities of everyone involved in the transfer, such as:
- Originating account number and holder
- Beneficiary bank account number and holder
- Originating and recipient bank details
- Intermediary bank details
- Additional instructions from sender to intermediary and recipient bank
The chances of funds reaching the wrong accounts are close to zero as long as the sender enters the recipient's information correctly. International wire transfers in the United States are regulated by the Office of Foreign Assets Control (OFAC.)
OFAC creates lists of high and medium-risk jurisdictions and identities. Banks verify sender and recipient information against these lists before executing a transfer.
Banks can recall wire transfers in case of any errors. Given the high level of security during the process, chargebacks rarely occur. However, wire senders can experience fraud if they send money to be collected at a cashing office.
For example, you can wire money to a recipient internationally using Western Union or other cash transfer services. The recipient, in this case, collects funds as cash at their local Western Union office. If you do not know the recipient, they might collect cash and refuse to provide services or goods.
In such cases, your chances of recovering funds are low. However, electronic wire transfers are very secure, and fraud rates are extremely low. Payment issues caused by network failure or bank mistakes are close to zero.
How do wire transfers work?
You can initiate wire transfers easily—either on the phone or through your bank's online portal.
What is needed for a wire transfer?
You will need the following for a wire transfer:
- Recipient's full name
- Recipient's account number
- Recipient's bank's name
- Receiving bank's routing number or ABA/ BIC code (for US domestic transfers,) SWIFT code, or IBAN code (for international transfers)
- The dollar amount of money to transfer
- Reason for transfer
- Any additional instructions, optional
How to begin a wire transfer
You can begin a wire transfer by calling your bank or using their online banking portal. Enter the information they ask you for and verify everything before confirming the transaction.
How long does a wire transfer take?
Incoming wire transfers arrive the same day or within one business day. International transfers usually arrive within three business days. In the United States, the Expedited Funds Availability Act (EPAA) forces banks to credit funds to recipients within one business day.
How much does a wire transfer cost?
Domestic wire transfers in the US cost between $1 to $35 depending on the transfer amount. International wires cost up to $50. However, international wires might cost more depending on the currency involved in the transaction, the recipient's jurisdiction, exchange rates, and any fees intermediary banks levy.
How to track wire transfers
Your bank will usually send you updates regarding your transaction. In case of any issues, you can request a SWIFT message from your bank free of charge. This message will list all details associated with the transfer.
In extreme cases, you can request your bank to initiate SWIFT tracking for a fee. This process takes a few business days and locates your funds.
Pros and cons of wire transfers
Wire transfers, like everything else, have a few pros and cons.
Pros of wire transfers
- Safe: Wire transfers are one of the safest ways of sending money. They're much safer than issuing paper checks.
- Instant: Domestic wire transfers arrive within the same day or a couple of business days.
- Easy: Initiating a wire transfer is as simple as clicking a button on your banking app. The bank does the heavy lifting during the process.
Cons of wire transfers
- Cash wires might be unsafe: Cash wire fraud, also called 419 or cash advance scams, might occur since the recipient could deny services or goods after receiving funds. Senders have no recourse in these matters.
- Incorrect information delays transfer: Entering the recipient's bank account information might create errors. IBANs are long alphanumeric strings, while domestic account numbers are lengthy. Typing errors can lead to incorrect transfers, leaving senders facing lengthy resolution times. In some cases, banks might reject refund requests.
- Recipient verification: Wire transfers to pay in advance for services or goods are risky. Senders cannot independently verify a recipient's identity or information.
When are wire transfers the right choice for your business?
Wire transfers are the right choice for your business if it encounters the following situations regularly.
You need to send large sums of money quickly
If you regularly send large sums of money, to your suppliers for example, and want funds credited quickly, wire transfers are your best option. Credit card payments are unsuitable for large transactions, while paper checks might sustain damage or take a long time to clear.
You want to avoid lengthy withdrawal times
Wire transfer recipients do not have to wait for funds to clear. As a result, cash flow projection, via financial management software, becomes simple. You can instantly debit your accounts while recipients can credit funds on their books.
You need to send money to international recipients
If your suppliers are based abroad, wire transfers are the easiest way of paying them. Electronic solutions like virtual cards are great for small sums, but if you regularly transfer large amounts of cash, wire transfers are a good choice since you won't have to worry about exhausting card credit limits.
Alternatives to wire transfers
Wire transfers are safe and reliable. However, if your business sends small amounts of money regularly, or wire transfer fees are too high, you can use one of the alternative service providers below.
- Zelle: Zelle works with almost every domestic bank account and credits cash to the recipient's bank account immediately. You can use Zelle even if your bank doesn't have a relationship with it.
- Venmo: Initiating petty cash transfers and paying miscellaneous expenses is easy with Venmo. Like Zelle, the service works with almost every bank account, and funds arrive instantly.
- Payoneer: Payoneer offers multiple ways of paying and getting paid internationally. The service helps you send a payment link to your clients or send virtual bank account details denominated in the sender's local currency. For example, you can ask your EU clients to transfer money to a Euro-denominated account even if you're situated outside the EU. You can also transfer funds for free to another Payoneer account, making salary transfers and supplier payments easily.
- Wise: Previously called Transferwise, Wise is similar to Payoneer but doesn't offer as many virtual bank account options. Wise does charge the lowest fees though.
Business and corporate payments
If you have a long list of suppliers, all with different payment preferences, Ramp's accounts payable software is your best choice. You can streamline AP processes by quickly paying bills, digitizing expense policies, avoiding duplicate spending, and automating accounting journal entries.
Wire transfers are a safe and easy choice to pay your suppliers or employees. You can also accept payments through wires and apply cash quickly. Even if wire transfers are unsuitable for your business, you can use one of the several alternatives listed in this article.
Direct deposits are a type of wire transfer payment. Direct deposits are ACH payments, a type of domestic wire transfer method.
Wire transfers are fast, but not instantaneous. Domestic wire transfers arrive the same day, while international wire transfers arrive within three business days.
Every bank has a different cutoff time. Usually, most banks send final wire transfer batches by 4 PM EST.