What Is a Wire Transfer? What You Need to Know Before You Send Money
Thanks to modern technology, there have never been so many ways to transfer money to friends or family in Canada or worldwide. One longstanding method has been the wire transfer, and it remains a popular option today. But is there a better way to send money? The answer is that it depends on how much you’re sending and where the money is going. To help you make an informed decision, let’s take a closer look at how wire transfers work.
What Is a Wire Transfer?
A wire transfer involves transferring money electronically via an international network of financial institutions and transfer services. It provides a quick and safe way for individuals or businesses to move money to another party.
How Do Wire Transfers Work?
There are four main steps in the wire transfer process:
- The sender visits their bank to initiate the wire transfer. They need to provide the bank with several pieces of information, including the recipient’s name and address, their bank account number, and the receiving bank’s name and address, and SWIFT code.
- The sending bank communicates the payment instructions to the receiving bank using an international transfer system.
- The receiving bank is notified of the transfer, and they deposit funds into the recipient’s bank account within two business days. The recipient is charged a small administration fee by the receiving bank.
- Afterward, the two banks settle payment behind the scenes.
Wire Transfer Fees
There are fees associated with sending and receiving money via a wire transfer. Depending on how much money you are sending, the cost starts around $25 for a domestic wire transfer and can range as high as $100 for international wires.
In addition to the sending fee, the receiving bank charges a fee to the receiving customer as compensation for the required administration. That fee is usually no more than $10.
Wire Transfer Pros and Cons
In a moment, we’ll look at some wire alternatives, but first, let’s take a look at the pros and cons of wire transfers:
- Funds from a wire transfer are received within 2 business days
- Financial institutions must adhere to an internationally recognized set of rules, and plenty of caution is used to ensure that the funds are being moved to and from a legitimate source.
- You can wire money to most countries in the world, and because almost all banks participate in the wire transfer system, you won’t have any trouble finding a bank that can send the money for you.
- They’re expensive. Unless you’re sending large sums of money, there are likely going to be cheaper options. We’ll take a look at a few in a moment.
- Cannot be reversed. Once a wire payment is released from the sending bank, the transaction cannot be canceled. If the money was exchanged for a foreign currency, this can result in a loss if the money is returned at a later date.
Alternatives to a Wire Transfer
When you need to send money, a wire transfer isn’t always the best option. Depending on the situation, there are cheaper and faster ways to send money. Here are a few alternatives to sending a wire transfer
A bank draft, or money order, is similar to a cheque, with the difference being that the funds are guaranteed. When a customer purchases a bank draft, money is immediately debited from their account and placed in the bank’s internal account. The funds are then forwarded to the recipient’s bank after the draft is presented for deposit.
A bank draft has two advantages over a wire transfer. For starters, it’s cheaper. The fee for most bank drafts is between $7 and $10. It’s also easier to obtain. The sender just needs to go to a bank teller and make the request. The only information they need to provide is the amount of the draft and the payee’s name.
The downside to bank drafts is that they aren’t as secure as a wire transfer. The only way to send a bank draft is in the mail or by courier if the recipient isn’t local.
Interac e-Transfer is a fast and secure way to send money to another person in Canada. The technology has been around for years, with participation from a majority of Canadian banks and credit unions. e-Transfers are cheap; many banks include them in their monthly service plans. Otherwise, the fee is only $1.50. They are also convenient; as long as you have the recipient’s email address, you can instantly send the funds from your mobile phone.
e-Transfers are limited to daily, weekly, and monthly dollar limits, and the maximum allowed per transfer is $3000. They are also unavailable for international transfers.
Like a bank wire transfer, Paypal enables you to move money to individuals in more than 190 countries worldwide. It’s also a very secure method of transfer, but the maximum amount you can send is $60,000. PayPal fees are usually cheaper than bank wires, but it may not always be the case. It depends on the amount you’re sending and the country you’re sending it to.
Foreign Exchange Services
Instead of purchasing an international wire transfer from a bank or credit union, you can use a foreign exchange service, like TransferWise or Western Union.
You can send money to more than 58 countries using Transferwise, a popular foreign exchange service. Transferwise can save you money in a few different ways. They use a mid-market exchange rate, which means that you’ll save on the foreign exchange when sending money. Transferwise does take a transaction fee, but it’s usually under 1%, less than the spread the bank is making on the foreign exchange for a wire transfer. There is also a small fee when you send money to your Transferwisse account, but you won’t be charged when you receive cash, unlike wire transfers.
Western Union is an international company that facilitates the transfer of money worldwide for families and businesses. As with a bank wire, Western Union charges a fee to transfer funds and they also make money on the foreign exchange spread. You can initiate a transfer from any Western Union location, and the recipient can pick up the funds at a Western Union location near where they live.
Western Union allows customers to transfer money online also, and they have partnered with several financial institutions, including EQ Bank, to facilitate online transfers for their customers.
Final Thoughts on Wire Transfers
For international payments, wire transfers continue to be a quick and safe way to send money. The big downside is the cost, which is why it might be worth checking out TransferWise, especially if you have to move money frequently. As for transfers within Canada, unless you’re sending a large sum you may be better off sending an e-Transfer, or using Paypal, for the cost savings alone.