Wire transfer and telegraphic transfer are the terms we often use interchangeably. It’s not correct, because there are some differences between these two methods. These differences are not very obvious, but they concern such important things as money transfer speed and cost.
Telegraphic transfer and wire transfer have something in common, too. Basically, both methods deal with the transactions made electronically. Thus, they fall under the category of Electronic Funds Transfers (EFT).
Before we juxtapose telegraphic transfer vs wire transfer, let’s briefly explain some basics.
An electronic money transfer is self-explanatory. In this case, we transfer funds electronically, moving them between the sender’s and receiver’s bank accounts. These accounts may be open in the same financial institution or in different ones. This type of transfer is executed using computer systems.
You can perform an EFT via your credit card, computer or another device, POS or ATM. It may be a purchase, mortgage payment, credit transfer, etc.
A wire transfer is a method used by banks for transferring money from one person/company to another. When you deal with it, you have some options to choose from. They depend on the amount you send, the urgency of payment, and some other factors.
For instance, you need to send some money to your friend Alice, who lives in another country. For it, you contact your bank and provide the data they require to make this transaction. These data are:
How does a wire transfer work? Your bank sends this information to the receiving bank utilizing SWIFT. (To know more about the network, read this article). Both your and Alice’s banks should have reciprocal (i.e. compatible) accounts to make this type of transfer. Otherwise, they use a bank with a reciprocal account to send your money.
Then you just wait until the funds reach Alice’s account. Normally, it takes between a few hours to several business days.
It sounds like a good method (though a little bit slow). On the downside, you have to pay a fee on every step of the way. For example, both you and Alice will have to pay for sending/receiving funds. You will pay a fee when you send money (you give the bank extra money for processing the transfer). In her turn, Alice receives less money than you sent, as her bank has deducted its fee. Also, If there are any intermediaries (correspondent banks) they take their percentage of the sum, too.
Western Union and similar money transfer systems are wire transfer services, too. If you want to use them, you locate a Western Union office in your city and fill some forms there. You can send money as cash, using a credit card or from one bank account or another.
The recipient picks up the money at their local WU office (or have it transferred to their account). As always, there are multiple deductions. The bank that issued your card may apply its fee. The system takes its share, too. It also makes money on currency exchange, if there is any. In general, the sum total depends on the amount you send, the payment method you prefer, where you send funds from and the destination point.
A telegraphic transfer, aka telex transfer, also belongs to the EFT category. In most cases, it refers to international funds transfers.
The term has an interesting origin. In the past, banks used to move money between accounts by means of telegraphed messages. This method was advanced compared to bringing cash and banknotes from one place to another.
Back then, if you wanted to send some money to your friend Alice, you had to go to your home bank. There, you provided the required data about the amount sent and the recipient. An operator at your bank would send a message to the recipient’s bank using Morse code. That is how the term ‘telegraphic transfer’ was coined.
These days, we use it as a general term for a variety of money transfer methods, both local and international. In the UK, the ‘telegraphic transfer’ term normally refers to the transfers via Clearing House Automated Payment System (CHAPS). In Europe, it most likely refers to SEPA transfers. Also, they widely use it for SWIFT payments.
When more people began to move their funds across different countries, it became clear that good old telex transfer needed a major upgrade. To meet the demands of the clients, financial institutions needed a global system with a uniform set of standards.
In 1973, SWIFT (the Society for Worldwide Interbank Financial Telecommunication) was launched. It replaced the outdated Telex messages. The system facilitated cross-border transfers between banks by introducing uniform standards. Due to this innovation, banks began to process transfers much faster and without mistakes. Of course, convenience has its price. The system that makes millions of international transfers daily collects hefty fees from its customers.
SWIFT payments stand for international wire transfers made using this particular system. Sometimes, the terms SWIFT transfer and telegraphic transfer are interchangeable.
CHAPS (The Clearing House Automated Payment System) was launched in 1984. Mostly, this system deals with high-value payments within the United Kingdom. Theoretically, you can use it for low-value payments, too. But it makes no sense, as CHAPS services are rather expensive. This fact is balanced by the high speed of payment processing. It makes the system a good option for those dealing with large amounts of money and tight deadlines.
Both types of payment explained, now we will compare them to see the pros, cons and distinctive features.
Both telegraphic transfer and a wire bank transfer are made electronically. Thus, they belong to the same EFT category.
A wire transfer can be either a bank-to-bank transfer or use a service like Western Union. In the first case, every party involved (sender and receiver) pays a fee. Plus, correspondent banks charge their fees, too. The second scenario means the sender pays for making the transfer. For the receiver the service is free.
If you send money using a telegraphic (TT) transfer, you give instructions to your bank and it sends funds to the recipient’s bank. As a rule, we use this type of transfer for international payments.
A domestic wire transfer may be made within 1 day. If you send funds on Wednesday, they reach the receiver the same day. A cross-border payment normally takes up to 5 days. The speed depends on the payment option you choose.
A telegraphic transfer is usually faster. It takes 1 – 4 days to move money from one bank to another.
As we have said, the cost of a wire transfer depends on which way of sending money you choose, where you send funds from and where they go to. Domestic transfers are cheaper than international ones. On average, a wire transfer is rather costly, as every bank deducts its fee.
Telegraphic transfers are normally international, meaning they often involve two or more currencies. To earn more, banks may apply unfavorable exchange rates, and it increases the amount a client loses. TT transfers usually feature rather high processing fees. Every bank — sender’s, recipient’s and intermediary — takes a percentage. Finally, it may sum up to a tidy amount. In general, the price of a telegraphic transfer may vary greatly depending on the currency, amount, destination, etc. There are no standard fees — different financial institutions may charge more or less.
We hope, this article helped you understand the difference between telegraphic and wire transfers.