How Does a Wire Transfer Work?

The exterior of a Western Union branch in a city.
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Wire transfers date back to the 1850s with the introduction of telegraph systems. By 1861, the New York and Mississippi Valley Printing Telegraph Company, now known as Western Union, set up the first transcontinental communication system. Fast forward to the age of high-speed electronic messaging and what once took days now takes seconds. Today, wire transfers are a common way to transfer money electronically between banks and individuals.

Initiating a Bank-to-Bank Wire Transfer

A bank-to-bank wire transfer starts with an in-person or online request. Bank policies determine whether you can initiate a wire transfer online or must make the request in person. For example, your bank may permit online requests for domestic transfers, but require you to make a large or an international transfer in person. Once you provide the required information, including the American Banking Association routing number and account number for the receiving business or individual, the bank verifies you have the funds available. It then assigns a unique universal identifier called a Business Identifier Code that identifies the destination location.

Electronic Relay Procedures

In the next step, your bank sends funds to the receiving party using a secure online system. For domestic wire transfers, many banks transfer money electronically using Fedwire Funds Service, a Federal Reserve Bank-operated company. Depending on the time you initiate the transfer, funds will be available either the same day or the next business day. For international wire transfers, many banks transfer money using the Clearing House Interbank Payments System, more commonly known as CHIPS.

International Transfers and the Patriot Act

International wire transfers are subject to regulations in the Patriot Act of 2001. The goal is to prevent money laundering and to stop funds from reaching enemies of the United States. To comply with these regulations, banks must keep detailed records about the receiver, the sender, the receiving location and the amount of the transfer. In addition, most banks set limits on the amount you can transfer and do not accept cash as a payment method. At the receiving end, most banks will not credit the recipient's bank account, but instead require the recipient to pick up the money in person.

About Private Wire Transfers

Private wire transfer companies like Western Union and MoneyGram use their own transfer systems. In a private system, instead of actually transferring the money, it goes into a central account. Essentially, a recipient withdraws money credited to the central system from the originating location. The rules for high-dollar domestic and international transfers are similar to a bank. For example, Western Union limits international wire transfers unless you set up an account in which both you and the recipient go through a verification process. The recipient must claim the transfer in person and verify his identity.

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