Whether you hold a personal or business bank account, there may come a time when you need to transfer or “wire” funds to another person or entity in another country. For many, this can seem like an intimidating task, as you are entrusting that your money is being sent to another country, to end up safely in the intended recipient’s account abroad.  To ease that apprehension, let’s talk more about how an international wire transfer is processed.

Wire Transfer 101

A wire transfer is a way of sending money from one person or entity to another, where the funds are moved electronically from the sender’s bank account to the beneficiary’s (i.e. receiver’s) bank account. The term “wire” is a throwback to the days when telegraph wires were used to communicate the transfer of funds between banks and other financial institutions on behalf of their respective account holders.

Wire transfers can be either domestic, which means they are transferred between bank accounts that physically exist within a country and its territories, or international, where funds are being sent from an account at a financial institution in one country to an account at a financial institution in another country.

In the case of the United States, banks and other financial institutions use either of two methods for sending funds: FedWire or SWIFT. A FedWire, operated by the United States Federal Reserve, is used to transfer U.S. dollars both domestically and internationally, where SWIFT (Society for Worldwide Interbank Financial Telecommunications) is commonly used to communicate the transfer of U.S. funds and most commonly traded foreign currencies around the world.

In the age of e-start ups and alternatives to traditional banking, it is wise to trust the security and efficienty of your bank's tried and true means of wiring money around the world."

How is the Money Sent?

Contrary to what many envision as bags of cash being couriered around the globe to make good on a transfer of funds, the reality is that both domestic and international wire transfers are “settled” using a ledger account system of debiting and crediting between banks and their correspondent banks here and abroad. A correspondent bank is a bank that performs financial undertakings on your bank’s behalf, where there is a formal relationship between the banks. These relationships play an important role, especially internationally, as the correspondent banks act on your bank’s behalf overseas.

Because the U.S. dollar is generally accepted as the dominant trade currency worldwide, many international wires are sent in U.S. dollar payments and are either held in or “settled” in a U.S. dollar account abroad. If you are sending U.S. dollars to be deposited in a U.S. dollar account overseas, it is important to inform your bank of this detail in order to avoid any additional fees or foreign exchange loss that might occur when an intermediary or correspondent bank unnecessarily converts the funds to the currency of the beneficiary’s country. Alternatively, if you are sending a payment for something that has been invoiced in another currency, the U.S. dollar equivalent can be converted to the foreign currency using a current market foreign exchange rate, and sent as a wire in the foreign currency. The reverse is true if you are receiving a payment in a foreign currency, where you would end up with U.S. dollars being deposited into your account here in the U.S.

In the age of e-start-ups and alternatives to traditional banking, it is wise to trust the security and efficiency of your bank’s tried and true means of wiring money around the world. The highly secure SWIFT system and the extensive network of your bank’s correspondent banking relationships help keep the process of sending your money safe and efficient.

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