A money order is a method of paying for something with cash using a check from a third party. You pay for the money order, and the third party issues you a check that you can give or send to someone. This person deposits the money order in their bank account or exchanges it for cash at a business or post office.
Definition of a Money Order
A money order is a paper document, similar to a check, used as payment. You buy a money order by giving cash or other guaranteed funds to a cashier, plus a fee for the service. They print out the order, you fill out some information, and send or give it to whomever you're doing business with.
How a Money Order Works
You can buy a money order from several sources, including:
- Supermarkets and convenience stores
- Banks and credit unions
- Check cashing, money transfer, and payday loan stores
- U.S. Post Offices
Money orders have a maximum limit, often $1,000 per money order.
If you use your bank, you can transfer funds from your checking or savings account. At a retailer, you typically pay for a money order with cash or a debit card.
Convenience and cost may dictate where you buy. Prices are typically lowest at the Post Office, supermarkets, and convenience stores—around $1 per money order. Banks and credit unions may charge $5 to $10.
If you receive a money order, you can cash it or deposit it just like a check. Similar to a check, you sign the back of the money order. It’s best to cash money orders at the same company or entity they were bought from, such as Western Union, a MoneyGram desk, or the bank or credit union that issued it.
If you don’t need cash right now, it’s wise to deposit the funds to a bank account as soon as possible. It's easy to misplace, lose, or forget it for a while.
Do I Need a Money Order?
Here’s why you may want to use a money order:
- It's a safer 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 is lost or stolen, you can cancel it and get a replacement. If you lose cash, it’s gone for good, and mailing cash is too risky.
- No bank account is needed: If you don’t have a bank account or don't want to use one, money orders are useful for making payments. You don't need a bank account to get a money order.
- They offer anonymity: 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 a spouse or partner). If you don’t know or trust the person you’re paying, a money order only gives someone your name and money.
- A seller might require one: Some sellers demand that you pay with a money order if they prefer not to take the chance of accepting a personal check.
- They are convenient for sending 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 worldwide.
Money Order Alternatives
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.
Other options offer “guaranteed” funds, and some are even safer than money orders.
It's important to fill out a money order correctly. Tell the money order issuer how much you’d like the money order to be for, and they print it for you. You need to write in the name of the entity you're paying on the line that says, “Pay to the order of.” You must sign it, or the person trying to cash it will not be able to use it.
Cashier’s checks are similar to money orders. They’re also paper documents issued to a specific payee and guaranteed by the issuer. However, only banks and credit unions issue cashier’s checks. Convenience stores and money shops or the financial firms they partner with usually don't. Also, if you need more than $1,000, cashier’s checks can be made out for more than money orders.
A wire transfer is an electronic transfer of guaranteed funds. Again, sellers can be confident that they will receive the money they've been promised. Wire transfers are more expensive (about $30 to $40 in many cases) and more cumbersome, but they can’t be faked or canceled like money orders.
You can pay utility bills, insurance premiums, and mobile phone charges with money orders. However, the fees and time it takes to buy them add up over time.
Electronic payments of non-guaranteed funds are also an option. If you’re 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 at no charge. However, it helps to be cautious when using electronic payments because information can be tracked.
Personal checks, while old-fashioned, are often good enough. Billers like utility companies and phone service providers still accept personal checks. However, online retailers might not accept them, instead requesting a money order or other payment method.
Money Order Criticism
Money orders are traditionally considered safe, but they are used by criminals in schemes to steal money. In fact, the perception that they are safe is exactly what makes them perfect for scams. There are many fraudulent schemes conducted using money orders. However, some common red flags can help you avoid trouble:
- 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.
The relatively low maximum value of $1,000 (or $700, in the case of international USPS money orders) limits what you can use money orders for.
They tend to take more time, even when it's easy to find somewhere to buy them. You may need to get cash, wait in line, wait for a customer service representative to complete the transaction, and get the money order into the mail.
Money orders are generally considered safe, but some financial institutions (like insurance companies and brokerage firms) don’t accept them because they can be used in money laundering operations. Mobile banking is very popular and convenient currently, but banks might not allow you to use your mobile device to deposit money orders, even though they accept written checks.
- The name of the payee (the recipient) and the financial institution that issued the money order appear on every order. When you buy one, 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 it and get the money.
- Because money order issuers demand the payment upfront, they shouldn’t bounce—as personal checks might. If you are the recipient, you cash or deposit a money order much like a check but with less risk.
- Money orders are safe for the most part, but you must still be wary of the circumstances in which you send or receive one.