Everything you need to know about wire transfers

As a business owner, it’s likely you’ve come across various terms related to online bill pay that have confused you. In fact, one of the most searched terms is “wire transfers”. Here’s a quick look at what wire transfers are, why we use them, and how they differ from other forms of payment. 

What are wire transfers?

A wire transfer is a way to move funds between bank accounts. It doesn’t actually involve the physical exchange of cash but is settled electronically and can be sent between banks or through financial services like Western Union. They are typically used for large, one-time transactions. 

There are two types of wire transfers: domestic and international. It’s common to use domestic wire transfers to make large payments that require same-day processing for real estate-related transactions. When it comes to international payments, wire transfers are one of the safest ways to send money to other countries. 

Let’s break it down: 

Time

Domestic wire transfers are normally processed the same day and international wire transfers are typically processed within 1-2 days. Plus, the recipient can access the money the moment it hits their account.

Amount limit

Transaction limits depend on the provider but are generally much higher than other types of transfers. Citibank, for example, has different limitations on different types of transactions and accounts, up to hundreds of thousands of dollars for a single transaction. Union Bank, on the other hand, has a daily limit of $20,000. 

Cost

The main disadvantage of wire transfers is their cost. Domestic transfers within the U.S. cost around $25-$30 per transaction, while international transfers cost up to $45-$50. Most banks also charge the transfer recipient.

Safety

Wire transfers are an incredibly safe way to transfer money. They are only initiated by authorized personnel at your bank or a non bank wire transfer service. However, once initiated, they can’t be canceled so it’s important to be careful when using them to transfer funds. 

How do wire transfers work?

A transfer is initiated from one bank or financial institution to another. Rather than cash, the institutions share information about the recipient, the recipient’s bank and account number, and the amount transferred. 

The sender pays for the transaction upfront and must provide their bank with the following information: 

• The recipient’s name, address, and contact number.
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• The recipient’s banking information, including their account number and sometimes the branch number as well.
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• The receiving bank’s information–the institution’s name, address, and bank identifier (routing number or SWIFT code).
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• The reason for the transfer.
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The recipient’s bank receives the information from the initiating bank and deposits its own reserve funds into the correct account. And that’s it! 

What’s the difference between wire and ACH bank transfers?

When you make an ACH payment to your vendor, the money is moved from your bank to an Automated Clearing House network instead of directly into your vendor’s account, like with wire transfers. But ACH bank transfers are relatively inexpensive. The charge per transaction is usually no more than a few dollars. Unlike wire transfers, ACH bank transfers can only be used to send or receive money inside of the U.S. 

ACH is better for everyday transactions because of the significantly lower fees. You can also set up recurring payments with ACH, which is great for bills like utilities and rent. 

Wire transfers are better for urgent payments when you’re willing to pay extra to get the money transferred as soon as possible. But, as the price is indeed very high, it’s best to use services like fast ACH  for smaller transactions. 

So, the main reason you’d choose a wire transfer is if you need to pay someone outside the U.S. 

So which type of bank transfer should I use?

We hope this helped you understand a bit more about what a wire transfer is and when to use it. The main reason to use wire transfers is for international transfers. However, it’s safer to use a secure third party like Melio, which adds a high level of protection to the transaction.
To find out more about Melio and how this easy and intuitive platform can help you send payments fast, safely, and securely, sign up today.