What is a wire transfer?

When you need to send a large sum of money – for example, you’re closing in on a new piece of property for your company and want to pay the deposit – bank wire transfers can be ideal. Fast, secure and reliable, wire payments are an excellent tool for sending or receiving money safely. So, what is a wire transfer?

Wire transfer meaning

A wire transfer is an electronic transfer of money that enables people based in different locations to safely transfer funds to financial institutions and locales all around the world. No physical money is ever actually exchanged between the two banks, just information. There are many different networks that enable bank wire transfers, including the Federal Reserve Wire Network, the SWIFT network and CHAPS (Clearing House Automated Payments System). The term ‘wire transfer’ stems from the fact that banks used to rely on telegraphic wires to complete this kind of money transfer.

How does a wire transfer work?

From the sender’s perspective, the wire transfer process is relatively simple. Simply head into your local branch, speak to a teller and follow their instructions. Alternatively, log into your online banking account and complete the bank wire transfer there. But what’s really happening when you ask to move your funds – how does a wire transfer work?

Essentially, after the sender pays for the transaction at their bank, the sending bank sends a message to the recipient’s bank through a secure system, such as Fedwire, including all the necessary information to make the transfer. Then, the recipient’s bank deposits their own funds into the account, and the banks settle the payment, thereby completing the wire transfer.

Advantages of using wire transfer

With so many payment options to choose from in this digital age, why choose a wire transfer? Let’s take a look at some of the advantages of transferring money in this way:

• Fast and easy way to send money 

• Available worldwide, facilitating international payments

• Versatile way to pay for a wide range of goods and services 

• Secure and traceable way to transfer large sums

Disadvantages of using wire transfer

As we can see, there are lots of reasons why a wire transfer is advantageous, but are there any disadvantages to this payment method:

• Providers may charge hefty fees, especially for an international transfer

• Some service providers may also charge a small fee or percentage of the amount transferred to the recipient

• Wire transfers are irreversible. The sender cannot recall the funds if they change their mind

• Funds cannot be transferred in batches, only in a single payment

• International wire transfers may result in sub-par exchange rates

• Some banks and transfer services may smuggle hidden fees into the exchange rate

• Because they are anonymous, wire transfers are very appealing to thieves and scammers

What information is needed for a wire transfer?

Each bank and financial institution has different codes and conventions for sending bank wire transfers. So, what information is needed for a wire transfer? The following information is needed to send and receive a wire transfer:

• Full name and address of the recipient

• Full name and address of the recipient’s bank

• Transfer sum

• Reason for the transfer

• Recipient’s account number and account type

• Recipient’s routing number

• SWIFT/BIC code (if applicable)

• IBAN number (if applicable)

There may be even more specific requirements for making a bank wire payment, depending on which country you’re moving funds to. For example, if you’re sending money to a recipient in Mexico, you may also need to include an 18-digit CLABE number to identify their account number, location and bank code. So it’s a good idea to contact the recipient’s bank directly to find out exactly what information is needed to wire money.

How long does a bank wire transfer take?

In most cases, your wire transfer will be completed within a few days. While it only takes a few minutes to set up and initiate the wire transfer, processing times can take a little longer. 

How long does an international bank transfer take?

Now we know how long it takes to wire money domestically. But how long do international bank transfers take? If you’re sending an international bank wire transfer, this may take a little longer than a domestic wire transfer.

It may take a couple of days to move the funds for an international wire payment. This is because your money needs to pass through a clearinghouse and a processing system from at least one foreign country.

How much does a wire transfer cost?

Wire transfer costs can vary depending on the bank or service provider facilitating the transaction. As a rule of thumb, most banks charge around 3–4% of your transfer amount. Recipients may also be charged a small fee. Exchange rates may be an area in which banks try to build an extra layer of profitability for themselves. UK banks typically implement exchange rate margins of 2–4% The best rates are usually reserved for higher-value transactions.

Opting instead to use an international payments specialist may prove cheaper than going through banks. These typically implement much lower fees, in some cases charging less than 1% of the transaction value.  

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Our Instant Bank Pay solution facilitates instant bank-to-bank payments without the hefty fees that come with credit and debit card payments.

Find out how GoCardless can help you with ad hoc payments or recurring payments.