Wire transfers are a term synonymous with the banking industry, but as more and more people come to understand how banks and other financial institutions bleed them through inescapable fees, wire transfers should fall further and further out of favor. And as consumers explore alternatives to wire transfers that do not require them to throw money down the drain — because these alternatives do exist — they may come to discover the benefits of exchanging funds via cryptocurrency.
To understand why cryptocurrencies are a serious, more consumer-friendly alternative to traditional wire transfers, you will first have to understand how the wire transfer process works and why it’s inherently slanted towards the banks.
If our recently-issued survey How Well Do Americans Understand Money? is any indication, the average person probably doesn’t understand why wire transfers — and many other elements of traditional banking, for that matter — are designed to favor the financial institution and screw you, the consumer.
Wire transfer refers to the process of transferring money from one bank to another. Wire transfers have become less and less common as less expensive alternatives have emerged.
When you need to send money to a friend and don’t have cash on hand, odds are that you’re not logging onto your bank’s website and initiating a wire transfer — you’re probably using your app of choice, whether it is Venmo or the Cash App, to transfer funds instantaneously.
But wire transfers still serve a purpose, namely high-value transfers required for purposes such as buying a home, a boat, a car, a work of art, or any other transaction where security is of the utmost. If you find yourself beginning to transfer any significant amount of money over Venmo, please think again. For these high-value transfers, wire transfers are a logical choice. Wire transfers offer a few benefits that are worth noting.
When you initiate a wire transfer, banks or credit unions exchange money directly through the SWIFT network or a similar alternative. This direct, bank-to-bank pathway for your money limits the number of avenues for the transaction to go haywire. In this sense, wire transfers are inherently secure, certainly more so than transferring money through the many run-of-the-mill apps that offer little clarity into how your money is being handled, and even less insight into what they will do to retrieve your money should it end up in the wrong hands.
Wire transfers are also considered to be as immediate as any transfer of funds can be. If you’re in a pinch and don’t have time to spare, then a wire transfer will generally get the job done. In the US, transferring funds via wire transfer can typically be completed in a day or two, and international transfers may tack on a day or two to the timeframe.
Once the wire transfer is complete, there are usually no further holds placed on the funds, so that the recipient can access them straight away. This is an especially valuable aspect of wire transfers for those in industries where liquidity is of the utmost importance.
3. Fraud Protection
Much of the security of wire transfers lie in the process necessary to open a bank account. While proxy accounts and identity theft remain issues that allow nefarious characters to open bank accounts, you are generally safe assuming that the name on a bank account is, in fact, the person that you are wiring money to. Such assumptions about other near-instant money transfer services — Venmo being one example — are not so safe.
Federal regulations provide stringent oversight of who can open a bank account, and it includes strong identity verification measures. Your bank will also work with you if something does go wrong to ensure that your money does not end up with an unintended party. This legitimacy is certainly a benefit of wiring money through a bank.
With this said, do your due diligence when wiring money, taking your own steps to verify the identity of the party that you are sending money to. Wire transfer scams are real, even if they are less common than, say, Venmo scams.
Not sure if you have heard this mentioned lately, but wiring money is going to cost you, and the cost comes in the form of (you guessed it) fees. Fees vary on a bank-by-bank basis. Many banks will charge you not only for sending money (outgoing), but receiving it too (incoming). NerdWallet lists the median wire transfer fees charged by American banks as $15 for domestic incoming transfers, $25 for domestic outgoing transfers, $15 for international incoming transfers, and $45 for domestic outgoing transfers.
These fees don’t seem exorbitant, especially for those who are sending or receiving sizable amounts. But you may be hit by lots of them. Additional fees may increase the cost of wiring money. Banks may charge an additional cost for exchanging currencies on international transfers. You may be charged more depending on the mode you use to initiate the transfer. For those who rely on wiring regularly enough, these additional costs add up quickly. And don’t be surprised if these aren’t the only fees you are charged when you wire money, as fees can be insidious by nature.
Some have come to view cryptocurrency as an alternative to wire transfers, even if they aren’t inclined to use crypto for most other transactions. Depending on the service/wallet that you use, it can be cheaper to send money using cryptocurrency than wire transfer. If you are able to familiarize yourself with the process of converting your money to Bitcoin or another cryptocurrency and sending the money to the recipient via crypto wallets, then you could save significant money over the long-term.
You can learn more about this process in this Hackernoon article. If you’d like to finally get your first cryptocurrency, just go ahead and sign up. You can start mining with just a few clicks.