How Wire Transfers Actually Work

If you’re looking to get money from point A to B quickly and securely, a wire transfer can be one of the fastest and safest ways to do it. But what exactly is a wire transfer? And how does it work?

What is a Wire Transfer?

A wire transfer is an electronic method of transferring funds between depository institutions. Wire transfers use the Federal Reserve Bank’s Fedwire system and/or SWIFT system to transfer funds from one bank to another, with instructions to credit a final beneficiary. The funds can be sent down the street to a local bank, to another state, or anywhere in the world in a matter of minutes.

Difference Between a Wire Transfer and Bank Transfer

These terms can often be used interchangeably, but they are not the same.

Bank transfers are electronic transfers commonly used to describe local payment routes, such as Automated Clearing House (ACH) transfers, where money is sent directly from one bank account to another bank account.

Wire transfers are paid through various banks. The sender’s bank acts as an intermediary sending information about the transfer to the receiver’s bank before the money is moved. If the wire transfer stays in the United States, it is normally paid through the Federal Reserve. If the wire is international, it is paid to whoever the sending/receiving bank has a relationship with in order to get the correct currency required for payment to the final beneficiary. Wire transfers are normally more costly than bank transfers, but faster.

How a Wire Transfer Works 

When someone requests a wire transfer, money is then transferred between depository institutions. In the United States, the Federal Reserve is the link that allows the movement of money. The bank then credits the money to the Federal Reserve. The receiving bank debits their relationship with the Federal Reserve to pay the beneficiary.

Difference Between a Domestic Wire Transfer and an International Wire Transfer

A domestic wire transfer stays within the confines of the United States including United States territories. The money is typically processed very quickly, same-day, or in a matter of minutes.

An international wire transfer is an electronic transfer of funds where the sender and receiver are in two different countries. They work similarly to domestic wire transfers, but there are just a few extra steps to account for the additional complexity of international money transfers.

Unlike domestic wire transfers, which can reach the recipient’s account in a few hours, international bank wire transfers take longer to process. The extra time for international wire transfers is due to each country often having a separate network of banks. An international transfer usually requires an intermediary bank or clearing house to connect the two networks. Think of it like flying, where an airport will have direct flights to many domestic locations, but an international destination may require a connecting flight.

Additionally, international wires can be sent via foreign exchange (FX) or U.S. dollar (USD). International FX wires are those distributed in the foreign currency where the overseas beneficiary account resides. FX wires are recommended when the beneficiary’s account is not a USD account and when the originator wants to know how much foreign currency will be received. Dollar amounts are converted automatically to the foreign currency selected. International USD wires are those distributed in U.S. dollars to an overseas beneficiary from a domestic U.S. account. USD wires are a good option when the beneficiary has requested to be paid in USD or has a USD account.

Benefits of a Wire Transfer

Wire transfers are fast. They can get across the world and paid, in some instances in seconds, depending upon the time of day and bank cut offs.

Downsides to a Wire Transfer

Wire transfers are immediate. Once you credit the customer account, you can’t arbitrarily debit the account in reversal. Meaning, you typically can’t get your money back once the wire is sent. Some might say this makes wires riskier. 

When to Use a Wire Transfer

A wire transfer can be an effective way to send money somewhere quickly. Wires can also be used for large dollar transactions or even very small transactions, depending on the purpose. Whether you’re closing on a home, transferring investments, getting money to your kids in college, paying a loan, or covering payroll fundings, a wire transfer could be a quick solution.

PlainsCapital Bank’s wires team partners with the fraud department to help protect your money during a wire transfer. It’s important for the team, and for the sender, to know with certainty who they are sending the funds to. To learn more about using a wire transfer at PlainsCapital Bank, visit the wire transfers page on the Bank’s website.