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Wiring money is convenient, but
it can be slow and costly, too

Wire transfersWiring money is one of those conveniences that nearly everyone relies on at some point. The swiftness and security allow banks around the globe to exchange billions each day, and give grandma the enjoyment of knowing her grandson will get his cash gift on graduation day.

If the phrase "wiring money" makes you think that the transfer moves as fast as lightning, though, think again. If speed is what you need, banks are not always the best place to go. Most banks will tell you it takes one or two business days to complete a domestic transfer and at least four for international ones.

As with any financial service, it's smart to shop around. Prices and delivery time vary among the banks and other outlets that offer the service.

Why banks take longer
There are several reasons for lag times with banks. If the institution is not a member of the Federal Reserve, it must go through a "correspondent bank" that is a member to process the transaction through Fedwire, the public sector wire transfer system.

It may take longer if you initiate the transaction late in the business day, especially on a Friday. And some banks wait until they get several transactions to process so they can do them at the same time.

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"Banks are dealing with a lot of backroom processing when they say it takes several days or so," says Stephen Cohen, a financial services analyst for the Board of Governors of the Federal Reserve System.

With services such as Western Union, which has its own proprietary system, same-day delivery is guaranteed. However, the price gap between Western Union and banks is big.

Banks usually charge a flat rate for transfers, while Western Union's rates climb as the dollar value of the transaction increases.

For example, Citibank charges $20 for a domestic transfer -- whether it's $500 or $5,000. Western Union charges $43 for a $500 transfer and $220 for a $5,000 transaction. Their fees are even higher if you call, rather than take cash to an agent, and send the money using an advance on a credit card.

The private companies cater primarily to people who don't have bank accounts, expatriates sending money to their home countries, traditional bank customers who need to move money faster than the bank can and tourists far from their local banks. The agent will issue the recipient a check, then cash it for them.

Some banks, on the other hand, will do transfers for their customers only. Others charge noncustomers a $5 or $10 fee.

There are also fees on the receiving end with banks. It can cost $10 to pick up a money transfer.

What about international transfers?
Before initiating an international transfer that involves currency exchange, a few phone calls can save you some bucks. Exchange rates vary daily. Check with commercial banks, private systems such as Western Union and MoneyGram, and currency houses such as Thomas Cook to compare the difference on rate spreads.

Jeff Stehm, an analyst for the Federal Reserve, recommends checking the wholesale exchange rates published in newspapers. "These can give you an idea of the difference between those rates and the retail rates," he says. "The bottom line is, it's going to pay to shop around."

Expect to pay at least 1 percent of the dollar value for foreign exchanges, in addition to the cost of the wire transfer.

If you are sending money to Mexico from California, Texas or Illinois, check with the U.S. Postal Service, which began offering wire transfers in 1997 under a program called Dinero Seguro, or "Sure Money."

"Our exchange rate is always a little bit better than Western Union, maybe not as good as MoneyGram, but competitive with retail rates," says Maria Pell, product manager for the Postal Service's retail business.

International transfers pose the greatest risk. Foreign banks are not always as heavily regulated or technologically advanced as U.S. banks. And foreign deposits are not insured.

Wire fraud investigations
Small storefront operations, of which there are thousands in cities with dense immigrant populations, are the most common targets of wire fraud investigations. Pell says Dinero Seguro started as a result of requests from immigrants "to help them get money safely across the border."

"There are a lot of shady money-wiring businesses out there," she adds.

John Kennedy, investigations manager for Florida's state Comptroller's Office, recommends that before using a wire transfer operation that is not mainstream, make sure it has a state license to do such business. "Don't let them show you an occupational license from a county or city," he says.

Kennedy says his office is currently looking for the operators of a Miami company, Pinolero Delivery, that went out of business after about 2,000 customers complained that money they wired to Central America never made it there. "The victims are people who feel more comfortable going to such places either because there are no banks in the area or they can't open an account," he says.

If you have a complaint, contact your state comptroller's office or its division of banking and finance.

Susan Grant, director of the National Fraud Information Center and Internet Fraud Watch programs of the Washington, D.C.-based National Consumers League, says money lost through wire transfers to foreign countries is difficult to retrieve.

"By the time you realize it, the money is already gone and it's a matter of trying to get it back from a crook," she says. "It's harder to stop and harder to dispute than something like a credit card transaction."

-- Posted: Oct. 12, 1999

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See Also
PLUS: Boosting your odds of a safe, speedy transfer
Why migrant workers won't wire money
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