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Wire transfers and bank transfers basically do the same things. They move money from one bank or financial institution to another, either internationally, domestically or both.Understanding the differences can help you determine which type of transfer is best for your situation. Let’s take a closer look at the differences between wire transfer vs bank transfer and what makes sense for the transactions you are making.
What Is a Wire Transfer?
A wire transfer is a way to make an electronic payment that transfers money from one bank to another bank or transfer agency using a secure network. With a wire transfer, the two parties share information about the funds’ recipient, the account the money is coming from and the amount transferred.Wire transfers are usually, but not always, used for international transactions. And they are frequently used for sending large amounts of money. Most international transfers are sent over the Society for Worldwide Interbank Financial Telecommunication or SWIFT network or another secure network such as the one used by the Federal Reserve for government transactions called Fedwire.
How Wire Transfers Work
People sending wire transfers pay an upfront fee and provide their bank with the recipient’s name, address, contact information,bank account number and branch number. The sender must also provide the receiving bank’s name, address and bank identifying code.The sender’s bank or other financial institution sends a message to the recipient’s institution with payment instructions through a secure system such as Swift or Fedwire. The recipient’s bank uses that information to deposit the designated amount into their customer’s account from its own reserve funds. Payment is then settled between the two institutions separately.Recommended: What Is an Online Bank Account?
Types of Wire Transfers
There are two different types of wire transfers.
Domestic Wire Transfers
A domestic wire transfer is one that takes place between two different financial institutions within the same country. A code or the recipient’s branch number is usually required.Domestic wire transfers are usually cleared the same day.
International Wire Transfer
International wire transfers allow money to be sent from an account based in one country to a bank or financial institution in another country usually using the SWIFT network mentioned above. International transfers are also known as remittance transfers.International wire transfers usually take two business days. The extra time is required because the transaction usually must be approved in the receiving country by a domestic clearinghouse.
What Is a Bank Transfer?
A bank transfer is also an electronic transfer of money from one bank account to another. In the U.S. most bank transfers are made using the Automated Clearing House or ACH network. ACH is a collection of more than 10,000 financial institutions. It acts as a financial hub for deposits and payments for businesses, consumers and government transactions.Nacha, formerly known as the National Automated Clearing House Association, is a self- regulating institution that oversees the ACH system. The association develops and administers the rules concerning electronic payments.Bank transfers often happen on the same day but may take two to three business days to clear.
How Bank Transfers Work
A customer initiates a direct payment or direct deposit via debit or credit using the ACH network. This person’s bank, also known as the originating depository financial institution, takes the ACH transaction and puts it together with other ACH payments or deposits.An ACH operator receives the batch of ACH transactions, sorts through the batch and makes the transaction available to the recipient’s bank or financial institution. When the transaction appears in the recipient’s bank account, the process is ended.Recommended:Opening a Bank Account Online Step-by-Step
Differences Between Wire Transfers and Bank Transfers
Although the end result is the same, there are several differences between wire transfers and bank transfers. Knowing the pros and cons of each can help you determine which one to use in various circumstances.
Usage
Bank transfers work behind the scenes when you make electronic funds transfers (EFTs) fromone account to another, autopay bills, write eChecks and receive direct deposits. All of these transactions go through the ACH network. You’ll likely need your bank account routing number for all of these transactions.Direct debits – when a third party like your gym or life insurance company pulls money from your account – are also considered bank transfers and executed through the ACH network.Bank transfers are also at work when you use third party payment apps such as PayPal, Zelle and Venmo.Alternatively, because of relatively high fees and high transaction amount limits, wire transfers are best suited for large business transactions. And, as mentioned above, wire transfers are often best for international transactions.
Risks Involved
There are risks involved with wire transfers if you make a payment to a recipient you don’t know. But legitimate wire transfer services make this difficult because each person involved in the transfer is required to prove their identity.That said, wire transfers are often initiated instantly, making it difficult if not impossible to reverse if you’ve transferred money in error or as a result of fraud.Additionally, wire transfers that start in the U.S. and are received in another country are monitored by an agency of the U.S. Treasury to make sure the transaction is not being used to fund terrorist activities or money laundering schemes. The agency also prevents money from going to countries that are sanctioned by the U.S. government.Bank transfers are also considered secure as long as you are sending money to a known recipient. If money is sent by mistake, reversing the payment is easier with a bank transfer than it is with a wire transfer.There is a risk of encountering overdraft fees with bank transfers if you don’t have enough money in your account when a bank transfer payment goes through. Additionally, if you make more transfers from your savings account to your checking account than is allowed by your bank, you may also encounter fees.
Timing
Another key difference when looking at wire transfer vs bank transfer? In general bank transfers are usually faster simply because they are almost always in the same country and use the same clearing house system. Bank transfers can often be done in the same day or up to two to three business days depending on the day and time the transfer is initiated.Wire transfers take at least two to three business days and sometimes more. The extra time is needed because international transfers go through a domestic automated clearing house in the country where they are received before they are settled.Recommended: How to Transfer Money From a Bank to a Prepaid Card
Cost
You’ll likely pay less for bank transfers than you will for wire transfers.Most banks and financial institutions don’t charge for ACH transactions and those that do usually charge about $3 per transaction. (Of course this can add up if you make several transactions per month, so it makes sense to check your bank’s policy.)Wire transfers, on the other hand, can cost anywhere from $35 for a domestic transfer to $45 for an international one. Depending on where the money is going, the fee may be even higher. The sender pays these initial fees. However, the recipient also may find a small fee for the transfer has been deducted from the total amount by the institution receiving the funds.
Amount Limits
Many banks have limits on bank transfers through the ACH network. A recent rule change has increased the possible limit to as much as $1 million per day. But most banks have limits that are much lower than that.Limits may be imposed daily, weekly or monthly. Some banks have a daily limit and a monthly limit. In general limits range from $3,000 to $10,000 daily. Some banks have different limits for outgoing and incoming bank transfers.It’s important to know your bank’s limits. You don’t want to be in a position where your monthly bill paying exceeds those limits and you find yourself getting hit with late fees for unprocessed payments. In addition, you want to make sure you can receive large deposits when necessary, such as payment for an auto sale or another big transaction.
System Used
As mentioned above, most wire transfers are done through the SWIFT or Fedwire transfer systems. Most domestic bank transfers use the Automated Clearing House, or ACH network.
Convenience
This is where bank transfers and wire transfers are more alike than different.Bank transfers make everyday transactions such as bill paying and paycheck deposits easy and more convenient than writing a check or paying cash. Wire transfers are also quite convenient. They allow money to be moved without cash or a check and transfers are fast and secure, even to other countries.Wire transfers may also be more convenient for transfers of large amounts of money because, as discussed above, the maximum amount allowed for wire transfers can be quite a bit higher than the limits for many bank transfers. This makes wire transfers convenient for business transactions, especially overseas.
Alternative Ways to Transfer Money
Money may also be sent via non-bank wire transfers using money transfer companies such as Western Union and MoneyGram. These can be used for both domestic and international transfers. Fees vary based on how you’re paying, where you’re sending money and how much you’re sending. The transfer can take anywhere from a few minutes to a few days, depending on the transaction.
The Takeaway
Wire transfers and bank transfers are convenient, secure ways to make financial transactions from one institution to another. Although they are the same in many ways, there are important differences in costs, limits and the way each transfer works that can help you determine which system is right for you.Interest rates across savings accounts can vary quite a bit. Lantern by SoFi has helped find some of the top providers and what rates they currently offer. You can compare online savings accounts through Lantern Credit.
Frequently Asked Questions
Can I be swindled through a bank transfer?
What details are needed for an international wire transfer?
Do wire transfers go through immediately?
Is the limit on a wire transfer more than a bank transfer?
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About the Author
Walecia Konrad
Walecia Konrad is an award-winning financial journalist with 25 years of experience in print and digital media. She is a graduate of Syracuse University and specializes in the topics of health care, personal finance, and employer-sponsored benefits. Konrad's work has been seen on CBS MoneyWatch, The New York Times, Money, SmartMoney, BusinessWeek, and Forbes. She has been the recipient of both a Pearl Award for Best Web Publication of the Year and a National Magazine Award for Personal Service.
