How Online Money Transfers Work

There are four main online money transfer services. Two have been in the money-sending business for decades. One, Western Union began as a transcontinental telegraph operator in 1851, and introduced money transfer over telegraph lines, or "wiring," in 1871. It was a fairly unsophisticated process: You'd give cash to the telegraph office, a message would be sent to the waiting friend at the other telegraph office hundreds of miles away, and they'd receive cash. Today, you no longer have to go to the train station or the Western Union outpost -- you can send money online via Western Union's Web site. For example, "Money in Minutes" transfers money from one person's bank account to another in, well, minutes. The service fee is on a sliding scale, so you'll pay anywhere from 8 to 10 percent of the total amount of money you're sending [source: Western Union].

MoneyGram, another holdover from the money-wiring era, also offers instant online money transfers at a flat rate of 8 percent, no matter the size of the amount sent. If the money isn't being sent to alleviate an emergency and can wait a couple of days, MoneyGram has a three- to five-day transfer service for which the fee is 3 percent [source: MoneyGram].

Owned and operated by eBay, PayPal is primarily an online payment system. But it can be used to transfer money. Both the money sender and money recipient should have PayPal accounts. Accounts are free, but must be tied to some kind of savings or checking account. To send money on PayPal, you simply enter the recipient's e-mail address that's on record with the service, and the money is transferred from your account to the recipient's. Warning: PayPal is not an instant online transfer service. It will take no less than three to five business days for the transaction to clear. On the bright side, it's very cheap: PayPal's fee is 2.9 percent of the amount sent, plus 30 cents [source; PayPal].

iKobo, whose business is primarily international, uses loadable debit cards to handle its online transfers. Essentially, the recipient gets an iKobo bankcard, and the sender tells iKobo how much money to put on the card. It's not instantaneous, however -- the money is available in eight business days. But that's if they already have an iKobo card. Getting the card adds at least a week to the timeframe. iKobo charges an $8 flat fee when the sender uses a checking account. When you use a credit card, the fee is based on a sliding scale from 8 to 30 percent of the transaction [source: iKobo].