Wire transfer

What is a wire transfer?

A wire transfer, also called a bank wire or a bank transfer, refers to the movement of funds between people or entities over an electronic payments system. There are a variety of options for wire transfers, depending on the value of the transfer and the speed required, and there are both retail and institutional wire transfer services. Banks use the Federal Reserve Wire Network (Fedwire) and Clearing House Interbank Payments System (CHIPS) to move funds. Services such as TransferWise or Western Union are available for consumer wire transfers.

Deeper definition

Bank wires are the most basic and affordable wire transfers available for consumers, although both the sender and the recipient must own bank accounts. A bank wire consists of the name of the recipient, his or her bank account number, and the amount of money being transfered. Non-bank wire transfers do not require a bank account, but they do require the name of the recipient, the destination, and the amount being transferred. The sender is also required to pay the amount upfront to initiate the transfer.

The cost and delivery time of a retail wire transfer varies depending on whether it’s a domestic wire transfer or an international wire transfer. A domestic wire transfer generally takes one day to complete, sent via a domestic Automated Clearing House (ACH). An international wire transfer, typically takes two days or more to complete, as it has to go through a domestic ACH and the foreign equivalent. When it comes to cost, domestic wire transfers cost around $25 to $35 per transaction, while international wire transfers cost over $45 per transaction.

The U.S. Federal Reserve operates the Fedwire system, which is used to move funds between banks and other financial institutions. Transfers are initiated by the sending bank, upon receipt of wiring instructions from a receiving bank; instructions include a bank routing number, an account number, a name, and a transfer dollar amount. When transferring the funds, the Federal Reserve debits the sending bank’s reserve account and credits the receiving bank’s reserve account. Wire transfers sent via Fedwire are completed instantly or on the same day. CHIPS is a smaller, privately-operated network. It operates more slowly, and is used by participating banks for less time-sensitive transfers.

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Wire transfer example

If an individual has to send money immediately because of an emergency, he can do it via a wire transfer. For instance, John has a son who lives abroad and needs money to pay for an unexpected car repair. John can get his son’s account number and transfer money from his own bank account into his son’s account. If his son doesn’t have a bank account, John can send money via money-transfer services like WesternUnion or MoneyGram.

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