What is a wire transfer? Wire transfers are popular because they are a low-risk, high security method of transferring money. "A wire transfer is the same day movement of funds between two accounts," says...
"A wire transfer is the same day movement of funds between two accounts," says Gwen Evans, banking professional with ten years experience. She continues, "There are same day wire fund processors like Western Union. Banks also process wire transfers (through the Federal Reserve network, but they tend to take at least one full day if not longer. When using more expensive providers like Western Union, you are paying for the value of getting it there immediately."
A wire transfer is further defined as a transaction initiated by the customer through the bank. The customer requests that the bank take money from an account and send it to another account either belonging to them or a third party. This is done through bank wire and can be effective immediately or take as long as three days depending upon the banks involved.
Federal Reserve Banks, which process bank wire transfers "were established by Congress as the operating arms of the nation's central banking system. Reserve Banks hold the cash reserves of depository institutions and make loans to them. They move currency and coin into and out of circulation, and collect and process millions of checks (wires and other transactions) each day, "According to federal reserve.gov.
Meanwhile, CHIPS, Clearing House Interbank Payments System that also processes wire transfers, "is the premier bank-owned payments system for clearing large value payments. CHIPS are a real-time, final payments system for U.S. dollars that use bi-lateral and multi-lateral netting for maximum liquidity efficiency". According to the Clearing House Interbank Payments System. It processes over 285,000 payments a day with a gross value of $1.4 trillion nationally and worldwide.
The first wire transfers were done by telegraph wire. A sender at one bank would simply communicate by telegraph to the recipient's bank the amount of money to be given to the other person.
In modern times, thanks to the use of computers and advanced communication, wire transfers can be done online, by telephone, or in person. They can also be done locally, nationwide and worldwide.
Wire transfers are popular because they are a low-risk, high security method of transferring money. It is much safer than transferring cash, or even a check, which can be lost. One feature that makes it very secure is that both account owners, the sender and recipient, must have a proven identity. In addition, unlike with credit cards, there is no possibility of charge backs in case the sender changes their mind about good or services they may have received from the recipient. Non-bank transfers (check cashing offices) are not nearly secure and not recommended. In the case, an unauthorized transfer should happen, due to theft and bank error, the sender's liability is limited.
There is one major draw back when it comes to bank transfers. Bank fees for wire transfers, especially international wire transfers, can be exorbitant. There is some national and international regulation however, to help control this problem. For example, the 2002 European Commission has regulated the fees banks may charge between Eurozone countries down to the domestic level.
