Money Orders, Bank Checks, and Cashiers Checks

Money orders are not as common as they used to be due to the switch to automatic transfer, and online pay services such as PayPal. Money orders are paid for when purchased from a bank or other place of business. The funds are guaranteed as long as there is not a stop payment or hold put on them. Although money orders and bank checks are not as common as they used to be, you will still likely deal with them at one point in your life.

Purchasing a Money Order

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You can purchase a money order through your bank or credit union. You can also purchase a money order through the post office or other businesses that offer them. 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. You can purchase the money order in the bank, and the teller will stamp the amount on the money order for you. The payee is left blank and the purchaser can fill in the name of whom they want it go to. Most banks have a limit on the amount they will allow you to purchase on a money order. The maximum amount for most money orders is $1000.00. If you receive one for more than that, you should be careful because it may be a scam.

When to Use a Money Order

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. This would be a time when you would use a money order is 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 from an individual 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.

Bank Checks, Official Checks or Cashiers Check

A bank check, official check or cashiers check is a check that is purchased and then issued by the bank instead of off of someone's account. The funds are guaranteed by the bank, though there can be stop payments made on the account. The bank check is completely filled out by the teller who issues the check. You must have all the pertinent information for the check when you purchase it. The maximum limit on the check will vary from bank to bank. There is generally a fee associated with the purchase of the check.

When to Use an Official Check or Cashiers Check

You should use a cashiers or official check when you are making a large purchase and using cash would not be practical. You need to have the information for the purchase already available to you. You may use an official check to make a large purchase in cash like a home or you can use it for a down payment on a home. Many banks will only issue a bank check to a customer because of the laws required around making purchases with cash over certain limits to prevent money laundering. 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.

Accepting a Money Order or Bank Check

You can accept a money order or a bank 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 bank check is legitimate and there are no stop payments put on the check because of theft. A bank check must be made out at the bank, which can protect you since it should be made out to you. You can call verify that the check is legitimately drawn off of the bank, before you accept it, if you are worried about it not being real.

Scams Around Money Orders and Bank Checks

There are a variety of scams circulating that use money orders or bank checks. The scams involve giving you a check to deposit into your checking account, and you withdraw the funds and send a portion back to the sender. The check does not clear the other bank, and your bank withdraws that money from your account in a week or two. You end up being out of the money you sent back and any you spent on the money the scammer told you was yours to keep. If something does not feel right about a situation or sounds too good to be true, you should not get involved in it.