The Differences Between Money Orders and Cashier's Checks

Although money orders and cashier's checks are not as common as they used to be, you will still likely deal with them at one point in your life. Here's a rundown of what you need to know about each.

01
The Differences Between a Money Order and a Cashier's Check

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A money order is a document, similar to a check, used for making a payment. Since they are prepaid, the funds are considered guaranteed forms of payment. Keep in mind though that money orders are sometimes used in scams, so be sure to be careful when using them.

Money orders are not as common as they used to be due to the switch to automatic transfer, and online payment services such as PayPal.

A cashier’s check, also called a bank check, is another form of payment since they are issued and guaranteed by banks. However, cashier’s checks have a higher limit than money orders, so they can be used for bigger purchases, like the down payment on a house. Banks may place a hold on amounts higher than $5,000.

02
Purchasing a Money Order

Money order sign

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You can purchase a money order from your bank or credit union. You can also purchase a money order through the post office or businesses that offer them. Money orders can be purchased at grocery stores, banks and credit unions, convenience stores, and U.S. post offices.

When you purchase a money order, the bank will either accept cash or directly debit your account. Most banks charge a fee for money orders, though they may waive the fee if you have certain types of accounts with them.

When purchasing a money order, you’ll need the amount of the money order and the name of the payee. Avoid making the money order out to cash, and always keep your receipt. The maximum amount for money orders is $1,000.

03
When to Use a Money Order

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A money order is ideal to use when you know you are going to make a large purchase and you do not want to carry cash. You would use a money order when your debit card or personal check would not be accepted, and the amount is too large to carry cash. If you are purchasing a car or making a large purchase through the classifieds, you can purchase multiple money orders if the amount is more than the limit put in place by your bank.

04
Purchasing a Cashier’s Check

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You can purchase a cashier’s check at your bank or credit union, and the charge will usually be around $8. You will need to present the following to purchase a cashier’s check: a valid ID, available funds in your account, as well as the amount of the check, to whom it is payable, and anything you’d like to include in the memo portion of the cashier’s check.

Once you purchase the cashier’s check, the funds will be removed from your account and transferred into the bank’s account. (That’s how they guarantee payment.) Once the check is cashed or deposited by the payee, then the funds will be removed from the bank’s account.

05
When to Use a Cashier’s Check

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You should use a cashier’s check when you are making a large purchase and using cash would not be practical. For example, many people use a cashier’s check when making a down payment on a house, since the amount is too large to carry cash.

Many banks will only issue a cashier’s check to a customer. You can use this type of check to try to avoid a hold on funds you are depositing. This is especially true if you want to avoid a hold on out-of-state checks. Traditionally, cashier’s checks are considered a safer payment method than a personal check, since the funds are guaranteed. They are also safer for you since they don’t contain your account number.

 

06
Accepting a Money Order or Cashier’s Check

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You can accept a money order or a cashier's check when you are selling a large item such as a car to a private seller. This will protect you because the funds are guaranteed as long as the money order or cashier's check is legitimate and there are no stop payments put on the check. 

Keep in mind that once you purchase a cashier’s check or money order, it is very difficult to cancel.

07
Avoid Scams

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There are a variety of scams circulating that use money orders or cashier’s checks. The scams involve giving you a check to deposit into your checking account, then instructing you to withdraw the funds and send a portion back to the sender.

The original money order or cashier’s check doesn’t clear, then you are left out of the money you sent back, as well as any money you may have spent from the original amount since you thought it was yours to keep.

If something doesn’t feel right about a situation or sounds too good to be true, it could be a scam.