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I see from a similar question that in the US and Canada wire transfer are even more expensive than in Europe where I live. But I am interested in the situation in Europe even though their cost is strange even outside Europe, after all they use the same infrastructure used by all the other payment systems.

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In order to send a wire transfer, the money backing it must be available at the sending bank's account at their respective national central banks. That would be a branch of the US Federal Reserve for US Dollars, and a national bank member of the European Central Bank for Euros.

In essence, a wire transfer is an immediate adjustment on the books of the central bank. SWIFT is a "messaging system" over which banks communicate what adjustments to make but does not actually move money.

Banks must have a positive balance by the end of the day, or else they must borrow cash at relatively high interest rates. In contrast, credit cards, ACH/SEPA payments, debit networks, etc. have a minimum 24 hour clearing cycle, thus the bank has at least a day to come up with the money, e.g. by selling investments or holding on to more cash from a previous day.

The US Federal Reserve is paying 0.10% interest, which is tiny versus other investments. Worse, the European Central Bank's deposit interest rate is currently -0.50%. They charge banks 1/2 percent to keep that money around.

In the US, there is a significant opportunity cost to having that cash immediately available, in the Eurozone, there is an actual cash cost. In both cases, the costs are charged back to the customers who use telegraphic transfers as expensive fees.

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  • If you make an international transfer between two countries in the EU it is not immediate, but it is even more expensive than a transfer within the country.
    – FluidCode
    Jun 15 at 16:24
  • @FluidCode You have the same problem as one of the other commenters in the previous post that you are getting multiple European payment systems confused, in part because banks don't use technical terms and automatically select what is most beneficial for them. Wires are always instant. If it's not instant, it's something like SEPA, a card-network based system (Visa Debit/Electron), or a third-party/national system.
    – user71659
    Jun 15 at 17:39
  • SEPA rules for immediate transfers between countries became effective recently, but they had no impact on the fees.
    – FluidCode
    Jun 15 at 19:45
  • @FluidCode If by "recently" you mean a decade ago, since there was a deadline to be on SEPA by December 2010.
    – user71659
    Jun 15 at 20:56
  • I well remember that my bank notified recently that by SEPA requirement the international transfer became immediate, but I won't try to prove it because it's pointless to keep discussing this point when the whole answer seems a lame excuse. Such are the accounting/borrowing costs that when you involve third parties like Visa or PayPal adding their fees the transfer is still cheaper? Does not add up.
    – FluidCode
    Jun 15 at 21:11

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