Money Order Basics: Tips for Payments

What Is a Money Order and How Does One Work?

Whether you’re buying or selling something, a money order might be your best option (or your only option) for payment. They’re considered a “safe” form of payment, making them a popular alternative to checks. But it’s important to understand the pros and cons of using money orders — and when other payment methods are a better choice.

What Is a Money Order?

A money order is a paper document, similar to a check, used for making payments. Money orders are prepaid, so they are only issued after a buyer pays for the money order with cash or another form of guaranteed funds.

Guaranteed funds: Because issuers demand payment up front, money orders are considered relatively safe, or “guaranteed,” forms of payment. They shouldn’t bounce—as personal checks might.

Specific payee: The name of a payee (the recipient of the money order) and the name of a financial institution that issued the money order appear on every money order. When you buy a money order, you specify who should receive the funds by filling in the name of the person or organization that you wish to pay. That makes it difficult for thieves to steal the instrument and get the money.

Be aware that con artists sometimes use money orders are in scams. Many money orders are legitimate, but you need to use caution. We’ll detail several common scams below.

Where to Buy

Money orders are available for purchase from several sources, including:

  • Supermarkets and convenience stores
  • Banks and credit unions
  • Check cashing, money transfer, and payday loan stores
  • United States Post Offices

How to Buy

To buy a money order, you need to pay with guaranteed funds.

  • Payment: At your bank, you can transfer funds from your checking or savings account. At a retailer, you typically pay with cash, a debit card transaction using your PIN, or a cash advance on your credit card. Note that credit card cash advances are expensive because you pay additional fees and high interest rates on those balances, so try to avoid that option.
  • Amount and payee: Tell the money order issuer how much you’d like a money order for, and they print the document for you. You need to write in the name of your payee on the line that says “Pay to the order of.” See detailed instructions for filling out a money order correctly.
  • Keep records: Keep your receipt and any other details about your purchase. If something goes wrong, you’ll need that information to track or cancel the money order.

Cost: Expect to pay a small fee to get a money order. Prices are typically lowest at supermarkets and convenience stores — around $1 or so per money order. Banks and credit unions may charge $5 to $10. For more details on fees, see a list of locations with pricing.

Purchase amounts: Money orders have a maximum limit, often $1,000 per money order. This makes them suitable for smaller purchases, but if you need more than that, you can buy multiple money orders (and pay multiple fees). Alternatively, you can use another method, like a cashier’s check, which may not have maximum limits.

Getting the money: If you receive a money order, you can cash it or deposit it just like a check. To do so, you generally endorse the back of the money order by signing your name. It’s best to cash money orders at the same location they were bought from (a Western Union or MoneyGram desk, or the bank or credit union that issued them, for example).

If you don’t need cash right now, it’s wise to deposit the funds to a bank account. Doing so keeps the money safe, and you can earn interest on your savings.

Why Use Money Orders?

Illustration by Ashley DeLeon. © The Balance, 2018

Money orders are one of many options for making payments. So, when does it make the most sense to use a money order?

Alternative to cash: A money order can be made payable to a specific person or organization, which reduces the risk of theft. If a money order gets lost or stolen, you can cancel it and get a replacement.

If you lose cash, it’s gone for good. Mailing cash is simply too risky, so money orders are a good option when you’re mailing a payment. What’s more, you can track the payment and prove that your recipient actually got paid.

No bank account needed: If you don’t have a bank account—whether you don’t want one or you can’t qualify for one—money orders might be a useful tool for making payments.

You can pay bills like utility bills, insurance premiums, and mobile phone charges with money orders each month. However, the cost of buying money orders adds up. That cost, and the time it takes to buy money orders month after month, might motivate you to open a local bank account.

Keep your information secret: When you write a personal check, that check contains sensitive information. For example, checks often show your home address, phone number, bank account numbers, and the names of any joint account owners (such as your spouse or partner, if any). If you don’t know or trust the person you’re paying, a money order hides that information.

Required by seller: Some sellers demand that you pay with a money order. They prefer not to take the chance of accepting a personal check, and it’s quite common to request money orders. A cashier’s check could offer the same level of security, but money orders seem to be more popular. That might be due to the lower costs and numerous locations for buyers to purchase money orders.

Send money overseas: If you need to send funds abroad, money orders are a safe and inexpensive way to do so. The recipient can easily convert a money order to local currency, and USPS money orders are well-regarded in numerous countries around the world.

Alternatives to Money Orders

Money orders aren’t the only way to pay. Other options offer “guaranteed” funds, and some are even safer than money orders.

Cashier’s checks are similar to money orders. They’re also paper documents issued to a specific payee and guaranteed by the issuer. However, banks and credit unions issue cashier’s checks — not convenience stores and money shops (or financial firms they partner with). Also, cashier’s checks are available for larger dollar amounts, so they’re a better choice for large payments. Learn more about how cashier’s checks compare to money orders.

A wire transfer is an electronic transfer of guaranteed funds. Again, sellers can be confident—even more confident than if they receive a money order—that they’re getting paid. Wire transfers are more expensive (about $35 in many cases) and more cumbersome, but they can’t be faked or canceled like money orders. Learn more about using wire transfers to send money.

Electronic payments of non-guaranteed funds are also an option. If you’re just paying bills, your bank’s online bill payment service can send funds almost anywhere—often for free. Even if you don’t have a bank account, many prepaid debit cards offer the same service, or you can pay using your card number. Online services and apps can also send money (preferably only to people you trust) at no charge.

Personal checks, while old-fashioned, are often good enough. Billers like utility companies and phone service providers still accept personal checks. Online sellers and others (such as strangers you deal with on Craigslist) might request a money order for added security.

Watch for Scams

Money orders are traditionally considered safe, but they can be used in fraud. In fact, the perception that they are safe is exactly what makes them perfect for scams.

Watching for common red flags can help you avoid trouble. To be safe:

  • Never send “extra” money back to somebody who pays too much with a money order — it’s almost certainly a scam. Be wary of forwarding extra money to “shippers.”
  • Verify funds on any money order that you have doubts about before you take it to your bank.
  • Avoid paying anybody with a money order if you think you’ll ever need to reverse the payment. You can only cancel money orders before they’ve been cashed.

Limitations of Money Orders

Now that you know the basics, you can appreciate the pros and cons of using money orders. Some of the main drawbacks of money orders are described below.

Maximum limits: Money orders are generally issued with a maximum of $1,000. Some money order issuers use an even lower limit (for example, international USPS money orders are limited to $700). If the purchase amount is more than $1,000, you’ll need multiple money orders. Then things become cumbersome—and just as expensive as other forms of payment.

Convenience: Money orders are easy to get. Just go to the customer service desk at a supermarket or visit a bank branch. But other forms of payment are much easier to work with. To buy a money order, you may need to get cash, wait in line, wait for a customer service representative (who is doing their best) to complete the transaction, and get the money order into the mail. Personal checks and electronic payments eliminate most (or all) of those steps.

Trust: Most people believe that money orders are safe. Sellers count on the issuer (instead of an individual) to deliver funds. However, money orders can raise red flags because they’re often used for fraud. In some cases, money orders are prohibited, or they cause extra administrative work and delays. For example, some financial institutions (like insurance companies and brokerage firms) don’t accept money orders because they can be used in money laundering operations. Likewise, banks might not allow you to use your mobile device to deposit money orders, but checks are no problem.

Article Sources

  1. United States Postal Service. "Domestic Money Orders." Accessed Jan. 14, 2020.

  2. Western Union. "How to Fill Out a Money Order." Accessed Jan. 14, 2020.

  3. United States Postal Service. "Modernizing the Postal Money Order," Page 8. Accessed Jan. 14, 2020.

  4. Western Union. "This Is the Fee Table." Accessed Jan. 14, 2020.

  5. Chase Bank. "Additional Banking Services and Fees for Personal Accounts," Page 7. Accessed Jan. 14, 2020.

  6. Capital One. "What Is a Cashier's Check?" Accessed Jan. 14, 2020.

  7. MoneyGram. "I Received a Money Order, Where Can I Cash It?" Accessed Jan. 14, 2020.

  8. United States Postal Service. "International Money Orders." Accessed Jan. 14, 2020.

  9. Consumer Financial Protection Bureau. "What Is a Wire Transfer?" Accessed Jan. 14, 2020.

  10. U.S. Bank. "Consumer Pricing Information," Page 7. Accessed Jan. 14, 2020.

  11. Federal Trade Commission Consumer Information. "Using Money Transfer Services." Accessed Jan. 14, 2020.

  12. Capital One. "What Is Mobile Deposit?" Accessed Jan. 14, 2020.