Coating of the Cu bond wire with Pd has been a rather widely accepted method in semiconductor packaging to improve the wire bonding reliability. Based on comparison of a Cu bond wire and a Pd-coated Cu bond wire on AlCu pads that had passed HAST, new insight into the mechanism of the reliability improvement is gained. Our analysis showed the dominant Cu-rich intermetallics (IMC) were Cu3Al2 for the Cu wire, and (CuPdx)Al for the Pd-coated wire. The results have verified the Cu-rich IMC being suppressed by the Pd-coating, which has been extensively reported in literature. Binary phase diagrams of Al, Cu, and Pd indicate that the addition of Pd elevates the melting point and bond strength of (CuPdx)Al compared with CuAl that formed with the bare Cu wire. The improvements are expected to decrease the kinetics of phase transformation toward the more Cu-rich IMC. With the suppression of the Cu-rich IMC, the corrosion resistance of the wire bonding is enhanced and the wire bonding reliability improved. We find that Ni behaves thermodynamically quite similar to Pd in the ternary system of Cu wire bonding, and therefore possesses the potential to improve the corrosion resistance.