The Risks of an International Wire Transfer

Because of the many risks associated with international wire transfers, most transactions are tracked by governments. Wire transfers are electronic transactions that move funds from one bank to a different foreign bank. Most banks try to deal with the risk of these transactions, but additional real-time information and global resources are necessary. To be as safe as possible with your finances and personal information, you should be aware of international wire transfer risks.

Wire transfers to do not operate on a real-time basis. Instead, the funds are deducted from accounts and moved to new accounts in batches. These transactions occur at the end of the day. There is the risk with large transfers that accounts can be overdrawn. So, if all the funds for the transfer are not complete by the next morning, but the foreign bank has deposited funds in the account, the bank may see a settlement failure, with no money to operate the next day. This creates a larger credit risk for the bank's clients. If the sum is large enough, then a ripple effect can occur between many banks, causing disruption of financial markets.

Banks have set a limit to the daily amount for wire transfers to minimize the possibility of daylight overdrafts. This minimizes the risk on the bank, but can be very inconvenient to the client. In an emergency, the amount of funds are limited. It would take planning by the bank customer to ensure that the total sum of a transfer clears in the foreign bank when you need it. This also will incur additional fees, since banks charge currency conversion and wire transfer fees. The more transfers you make, the more fees you will pay.

The risk of fraud with international wire transfers has a long history. It is very difficult for banks to recover funds, once they go overseas -- and the larger the transaction, the larger the risk. Wire transfers can be initiated over the phone or through the Internet, making it easy for an imposter to authorize transactions, even if security codes are used. Internal bank employees can gain access to the security codes and computer hackers can bypass the online security to gain the necessary transfer information. Transfers that initiate from the branch are less risky, since a type of authorization is needed by provided several forms of ID.

It is best to transfer money in the currency of the receiving bank to reduce any possible risks of overdrawing on your account. Currency exchange rates can change from day to day. Transferring money in the foreign currency locks in the exchange rate. If you do not transfer the money in the foreign currency, than you may find that the cost of the transfer will vary and can cause you to overdraw on your account, or simply cost more than you expected.