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A guide to wire transfers - Are they worth it?

Miri Rader

When sending and receiving money is involved, there are a lot of payment options, banks, and services to choose from.

Wire transfers are one of the most common online payment methods today. You can send and receive money from anywhere on the globe via wire transfer.

So, are wire transfers worth it?

Is there a better way to transfer money than sending it by wire?

Keep reading to find out.


What are wire transfers?

Wire transfers can also be called bank transfers or credit transfers. They are a way for people to send and receive money electronically. Transfers can be done between accounts or at a cash point. 

A wire transfer is a method of transferring money electronically through a network managed by banks and other financial institutions worldwide. Both a sending and a receiving institution is required, as is information on the recipient, such as the recipient's name and bank account number.

Types of wire transfer

1. DOMESTIC WIRE TRANSFER

In a domestic wire transfer, money is sent from one bank or institution to another within the same country. It can either be an intra-bank or inter-bank transaction. In North America, funds are processed through the Automated Clearing House System (ACH), a centralized network connecting banks.

2.     INTERNATIONAL WIRE TRANSFERS

Here, the transaction takes place cross-border. International wires are used to transfer money to a different country. It usually involves two banks and sometimes a third party, operating as an intermediary between the sending and receiving banks to facilitate transactions.

International transfers necessitate the use of a SWIFT or routing code. There may be a fee charged by some receiving institutions, which is deducted from the recipient's final payment amount. It generally takes three to five business days for the payment to be processed and cleared. For international wires from the United States abroad, the transfer is transited through the Automated Clearing House (ACH) in the US and to an international banking system, which might delay delivery by an additional day or more.

How do wire transfers work?

The sender initiates the wire transfer by contacting their financial institution or service provider to request the transfer. The sender provides the bank with all the relevant transactional information.

To make a wire transfer, you will need the following information:

a.     Recipient’s name

b.     Recipient’s address and contact information

c.      Recipient’s banking information, including account number and branch number

d.     Receiving bank details, including institution name, address, and bank identifier (routing number or SWIFT code)

e.     Reason for the transfer

f.       Funding source (for example, credit cash, debit cash)

g.     Recipient’s mobile number, if sending to a mobile wallet app

h.     A copy of a government-issued ID.

First, the sender must first pay their bank the full transaction amount. The initiating firm then uses a safe system like FedWire or SWIFT (Society for Worldwide Interbank Financial Telecommunication) to transmit a message with payment instructions to the recipient's bank. All essential information is sent from one bank to another, and the receiving bank deposits its own reserve cash into the designated recipient account. The payment is then settled at the back-end between the two financial institutions after funds have been deposited. 

Note that a wire transfer is not the same as an ACH transfer, which may be used to transfer money between connected bank accounts or to pay bills.

There are a few things to keep in mind before starting a wire transfer.

a.     Maximum amount of money that can be sent.

b.     Limits on the number of transfers you can make per day

c.      Time required for the wire transfer to process

d.     Fees associated with transferring money by wire

How long does a wire transfer take?

Even though domestic transfers are often advertised as same-day transactions, the recipient typically has to wait at least one additional business day to receive their money. Transferring money across borders can take anywhere from three to five days, depending on the destination. Sometimes, international transfers can take up to a week or more.

Due to time zones and bank opening times in the destination country, you may have to wait several additional hours or even days for your transaction to be processed and for your recipient to receive the funds.

How much does a wire transfer cost?

When it comes to bank wire transfers, the cost varies depending on which bank you use and where it is located.

In the United States and Canada, a domestic wire transfer typically costs $25-$35, whereas an international wire transfer usually costs $30-$80 per transfer.

When making a wire transfer, you should also always be aware of potential hidden fees. For example, a bank acting as an intermediary in the transaction can deduct money from the wire payload (the amount being transferred) without first getting the permission of the account holder. 

Advantages of a wire transfer

A. INTERNATIONAL PAYMENT CONVENIENCE

All across the world, you can access wire transfer services. Paying and receiving money is now possible from anywhere in the world. You also have the option of receiving payments in your native currency as a recipient.

 B. HIGH TRANSFER LIMITS

Wire transfers are usually a good choice to send one-off, high-value payments online. Transfer limits are dependent on the bank or service provider but tend to be higher than other payment methods.

Disadvantages of a wire transfer

A. EXPENSIVE TRANSACTION FEES

Banks charge both the sender and the recipient for the service they provide. Most banks charge a fee for sending money, and they deduct it separately from the amount sent. The receiving and intermediate banks also charge fees for receiving money. It is very common to receive less than the original amount sent, due to additional fees.

In addition, the fee structure is opaque. Any additional amounts charged for sending money to a bank account may not be disclosed when initiating a wire transfer. A wire transfer can have several hidden fees attached.

B. PRONE TO ERROR 

Considering all the documents, forms, and intermediaries included, the potential for human error is significant. If you or any other party involved in the process gets a single number wrong, the money may end up in the wrong bank account. 

C. LACK OF TRANSPARENCY

One of the biggest downsides of wire transfers is the lack of transparency. Once you have sent the money, it can feel like your wire transfer disappears into a black hole, and it can be hard to trace back. In order to track the status of your transfer, you need to contact or visit your bank to find out. Your bank can track your transaction using the Federal Reference Number, which is issued when you initiate a wire transfer.

For the recipient, tracking the payment status becomes even harder. First, they need to contact the sender to get the following information:

a.     Federal Reference Number

b.     Sender SWIFT code

c.      Date the payment should have been available

d.     Exact transfer amount.

Armed with the above info, they can then go into their bank and see whether a wire transfer is pending for their account.

Are wire transfers worth it?

Wire transfers can be a hassle to set up because of their many requirements and complications. They are becoming a less popular choice because of their complexity and the accompanying high prices. 

If you are a consumer and looking for a way to send money internationally or transfer a one-time, high-value payment, wire transfers are still a good choice. You will have to accept the tedious initiation process and pay attention to filling in all the information correctly.

For businesses looking for a convenient solution to process large payments on an ongoing basis, there are better options than wire transfers.

For domestic business payments in Canada, MazumaGo is the simplest solution to send and receive payments without transfer limits. Not only do you save costs, but you can initiate payments in a fraction of the time. MazumaGo also lets you track your transactions effortlessly and in real-time. Canadian businesses can enjoy the simplicity, cost-saving, and time-saving benefits of MazumaGo today.

You can find more info on how MazumaGo compares to wire transfers here.

To get started with MazumaGo, sign up for a free account or book a demo now to learn more. You are only a click away from enjoying seamless and secure transactions.

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