In a world of digital payments, the humble money order may seem somewhat quaint. With the ability to directly transfer payments via app, pay with a credit or debit card, write a personal check or even pay with actual cash, why would you ever need to use a money order?
Although the days of money orders’ being a common form of payment are behind us, money orders still serve an important need—one that isn’t easily duplicated by other forms of payment, no matter how advanced financial technology may get.
Here’s what you need to know about what a money order is, how money orders work and when and how to use them.
What Is a Money Order?
Much like a check, a money order is a paper form of payment. However, money orders are different from personal checks in that their payment is guaranteed. Unlike a check, money orders can’t bounce. That’s because you purchase a money order with cash or another guaranteed form of payment, such as a traveler’s check or a debit card. You can’t purchase a money order with a personal check or a credit card.
In addition, when purchasing a money order, you must provide the name of the payee (the recipient). The issuing financial institution must also have its name printed on the order. Having both of these pieces of information on each money order makes it difficult for anyone other than the payee to cash a money order, making money orders safer than cash and potentially safer than some digital forms of payment.
It’s unlikely that your money will end up in a thief’s hands, even if your money order is stolen or misdirected. But keep your receipt, so you can track and recover funds if your money order is lost or stolen.
Money orders do have certain limits, however. For example, at the United States Postal Service (USPS), you can’t purchase a money order for more than $1,000. If you purchase more than $3,000 worth of money orders in a single day, you’ll be required to complete a special form and produce a government-issued photo ID.
How to Purchase a Money Order
If you need a secure payment option, you can purchase a money order from one of the institutions or establishments that sell them. These include:
- The USPS
- Some retail banks, like Wells Fargo
- Some retailers, including pharmacies, grocery stores, big-box retailers and convenience stores
- Check-cashing and payday loan stores
Each money order has a nominal fee, which can cost under a dollar at some retailers. USPS charges $1.25 for money orders of up to $500 or $1.75 for money orders between $500 and $1,000. Money orders can cost as much as $5 at a retail bank.
To purchase the money order, be prepared with a way to pay for both the face value of the money order and the fee. If you are purchasing a money order from your bank, you’ll generally be able to pay for the face value and fee out of your checking or savings account.
When purchasing the money order, first verify that the amount is correct. Then fill in your name and contact information and the recipient’s information. Like a personal check, money orders have a memo line where you can write the purpose of the money order (although it is not required). There’s also a spot for your signature, which is required.
You’ll receive a receipt from the issuer, which provides proof of payment if the money order goes astray—in some cases, it can also allow you to track when the payee receives the money order.
Why Use a Money Order
In a world driven by convenience, it may seem like there is no room for money orders. However, there are several excellent reasons to choose a money order over other forms of payment:
- They provide unbanked and underbanked individuals access to additional payment options. If you don’t have a checking account, a money order can fill in some of the gaps.
- They are a secure form of payment to send through the mail. Cash in the mail can be stolen, and personal checks include your bank account number, which you may not feel comfortable sharing with the recipient. A money order can’t be stolen like cash, and it gives no private banking information to your recipient.
- They are more secure than carrying cash. If you need to purchase an expensive item, you may feel uncomfortable carrying cash. For instance, if you purchase a sofa from someone at a site like Craigslist or Facebook Marketplace, you may choose to bring a money order for the purchase rather than cash.
- They are the preferred form of payment for some transactions. Some sellers request money orders (or cashier’s checks) to protect themselves from bounced checks. This is common with private party car sales or online person-to-person sales.
If a money order goes missing, there are systems in place to replace a lost or stolen money order, so you do not lose the money. You may have to pay a fee to replace a lost or stolen money order, but that is far preferable to losing the full amount.
How to Cash a Money Order
If you are the recipient of a money order, you can generally deposit it into your bank account for free. Remember, when depositing a money order, it’s smart to wait to spend any of the money until the full amount clears your bank.
If you prefer to cash a money order, you may be able to do so at your bank or any institution that issues money orders. But you may have to pay a fee of up to a few dollars. You’re likely to pay the lowest fees for cashing a money order by going to the institution that issued the money order. For instance, the post office cashes USPS money orders for free.
When you deposit or cash a money order, you will need to endorse it on the back in front of the counter agent. Do not sign the money order before going to cash or deposit it. You’ll also need to provide a government-issued photo ID to cash it.
The Downsides of Money Orders
Although money orders serve a useful purpose, they do have several drawbacks.
To start, they are not a convenient form of payment, since they must be purchased in person. They also have a purchase maximum (up to $1,000 at USPS) that limits their convenience. For example, at USPS, payments for over $1,000 require you to purchase multiple money orders to cover the full cost, and you will have to pay a separate fee for each one.
Fees are another potential downside of money orders. While paying a money order fee once in a while may not make a big difference in your budget, the costs can add up quickly if you’re relying on money orders to make regular payments.
Finally, money orders are also commonly used in scams. These scams often involve a fraudster sending the victim a bogus money order for a large amount and asking for a portion of the money back. By the time the victim discovers that the money order is fraudulent, they may have already deposited the money into their checking account and sent money back to the scammer.
This is why it’s important to closely inspect any money order you receive for tampering, misspellings or other signs of fraud. Be leery of any money order sender who seems to be in a hurry for you to deposit the document.
Money orders may not be a go-to alternative when other payment options are available, but they are a more secure form of payment than cash. If you need to provide a guaranteed payment, a money order is a low-cost option widely available at many locations across the country. Although money orders have some drawbacks, their usefulness as a secure payment method means they can be a savvy choice for transactions.
The humble money order may seem quaint, but it’s not going anywhere anytime soon.