Banking Basics - A Guide to Transfer Types


In the world of banking, a transfer isn't just a transfer. There's an entire ecosystem of various types, each with its own unique mechanisms, benefits, and use-cases. From Automated Clearing House (ACH) transfers and wire transfers to cashier's checks and person-to-person (P2P) payments, the landscape of bank transfers is more diverse than you may have initially expected.

So, whether you're a seasoned software engineer looking to gain a better understanding of the banking industry, a newcomer to the field, or just curious about how money moves around in this digital age, join me as I share my insights and break down the complex world of bank transfers into understandable chunks. Let's unravel the mystery together!

Types of Transfers

Wire Transfers

These types of transfers are great when you need to move money quickly between financial institutions. These are often used for large transactions or when speed is a necessary component, because most transfers can happen within the same day, or the next business day. While you pay for the benefit of speed, one potential downside is that once money is successfully moved, it typically cannot be reversed. So keep that in mind before you send money to that Nigerian Prince… again.

When you do need to send one, here is how they work. First the bank sending the wire transfer deducts the funds from the customer's account. From there, the money is sent to the recipient's bank through one of many networks such as SWIFT or Fedwire. Once the recipient's bank receives and verifies the details of the transfer request, the funds are added their account.

Automated Clearing House (ACH)

When speed is not of the essence, ACH transfers are a safe bet when you need to move money within the same country. While they may take up to a few days to process, they are also usually free; which is why they are often used for things like direct deposits, bill payments, and moving your money between accounts.

This type of transfer uses a method called batch processing, where transactions are bundled together and then sent at specific times to the ACH network. From there, the clearing house will route the transactions to the correct recipients where they will debit or credit the funds to the specified account.

Bank Draft

A bank draft is a payment method where the payer's bank guarantees payment to the payee. They do this by first verifying the payee has sufficient funds, and then setting those funds aside for the payee. This provides a sense of security for the payee, as the funds are guaranteed to be available by the bank. Bank drafts are often used larger purchases and support a number of currencies. As such, they can be used for both domestic and international transfers.

Cashier's Check

Cashier's checks, also known as certified checks, are almost identical to bank drafts. The primary difference is, with a cashier's check the money is actually transacted from the customer's account and to the bank's account. The bank then issues a check which pulls the money directly from their account rather than the payee's.

While they can technically be used for international transfers, there is little reason to. That's because international transfers makes them subject to fees, delays, and possible rejection by the foreign bank. As a result, they are primarily used for domestic transfers.

Money Orders

These are another guaranteed type of payment, like bank drafts and cashier's checks. The primary difference here is that, with money orders, you don't need to have an account with a financial institution. They can be purchased from banks, credit unions, post offices, grocery stores, as well as check-cashing or convenience stores. This requires you to provide the money up front, as well as any applicable fees.

After filling out the money order, you can then send or give it to the recipient, who can then cash or deposit it anywhere that accepts them. One additional perk of money orders is that the money can be refunded as long as it has not been cashed. However, amounts are limited to less than 1,000fordomesticand1,000 for domestic and 700 for international orders.

Peer-to-peer (P2P)

If you've ever used services like PayPal, Zelle, Cash App, Venmo, Google Pay, or Apple Pay, you've used peer-to-peer payments.

Simply put, they allow you to send money directly to another party, usually through an app or website. After creating your account with a particular service and linking a bank account, you can easily send money to another user on that service. The service will withdraw any necessary funds from your bank account and send them to the recipient. From here, the recipient may keep that money on their service account, or transfer them to their bank account.


Whether it's the speed and urgency of wire transfers, the user-friendly convenience of P2P transfers, or the reassurance of bank drafts and cashier's checks, each type has an interesting and unique set of benefits and mechanisms.

As a software engineer, understanding these distinctions allows me to understand what's happening in the background of the tools that I get to help build. For everyone, this knowledge can help inform decisions about how we manage and move our money.

No matter your role, a deeper understanding of these processes empowers you to navigate the financial world with greater confidence and insight.