How Do Money Orders Work: What You Should Know

Money Orders:

Whether you’re buying or selling something, a money order might be your best option (or your only option) for payment. It’s considered a “safe” form of payment, making it a popular alternative to checks.

 How Money Orders Work

Money orders may not be the most innovative or technologically advanced payment method, but they can come in very handy in many situations. What is a money order, and when should you use one?

This article focuses on:

What is a Money Order?  

A money order is basically a tool to transfer money or make payments. Think of it as an alternative to a check. However, while checks and money orders can serve a similar function, and they also look quite similar, there are some important differences to consider.

Unlike regular checks, money orders are prepaid. That means they’re backed by large agencies or corporations instead of individuals, making them especially valuable because of the safety and reliability they provide.

You can purchase a money order with cash or with a debit or credit card. They’re available for sale at banks, credit unions, the U.S. Post Office, and even Wal-Mart stores.

Most money orders typically have a $1,000 limit, so you may need to purchase multiple money orders to make payments for bigger amounts. There’s also a small cost attached. Money orders from USPS cost a maximum of $1.65 per $1,000, but banks and credit unions can charge considerably more.

After you purchase the money order, you need to fill in the name of the recipient, as well as your name. In many cases you’re also required to provide additional data, such as your address and phone number.

How to Use a Money Order?

When you purchase a money order, you pay the full amount upfront plus a small fee. After verifying that the amount is correct, you’ll need to fill in your name and contact information on the front of the money order, plus the name of the recipient and their contact information.

A memo line allows you to specify what the money order is for. You then sign the front as if it were a personal check. Be sure to keep your receipt in case you need proof of payment or want to track when the order is received.

For example, let’s say you owe $800 in rent on the 1st of the month and you don’t have a checking account. You would head to a store that sells money orders, purchase one for $800, then give it to your landlord to use as payment for your rent.

Then, your landlord would be able to deposit the money in his bank account just as if you had paid in cash or with a personal check.

Money orders are useful any time you don’t want (or aren’t allowed) to use a check or cash to make a payment. Here are a few situations where you might use a money order:

4 Uses of a Money Order

  • You need to send a secure payment through the mail: It’s unwise to send cash through the mail, for obvious reasons. A check can be a better option, but maybe you don’t trust the payment recipient with your bank account number. A money order alleviates that risk.
  • You’re buying something and the seller requires a money order: Maybe you’re buying a used car for a few thousand bucks from a private seller. That person might want you to pay by money order because they won’t have to worry about your personal check bouncing.
  • You need to pay some bills but you don’t have a bank account: Money orders require upfront payment. Whatever the reason you lack a bank account, money orders are still an option.
  • You’re making a large purchase and you don’t want to carry around a large amount of cash: If you’re buying something from another individual and it’s expensive, using a money order instead of cash would help you avoid carrying around large sums of money. For this reason, money orders are frequently used when people buy cars from other individuals through websites like craigslist.org.

Where and How to Buy Them

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

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 or a debit card transaction using your PIN.

Amount and Payee

It’s important to fill out a money order correctly. 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.”

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 the Post Office, supermarkets and convenience stores—around $1 or so per money order. Banks and credit unions may charge $5 to $10.

Purchase Amounts

Money orders have a maximum limit, often $1,000 per money order.5 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.

How to Send a Money Order

You need to pay up front for the money order and fee with cash, a debit card, or traveler’s check. You also need the name and address of the person to whom you’re paying with it, and an envelope with a stamp to mail it.

First, figure out how much money, exactly, you need to send, meaning check on what the fee will be to send it where you plan to send it.

Remember, the fees are charged per money order, so if you have to purchase more than one, you need to account for it in the amount you bring to where you will buy it.

  • Add the fee for the money order to the total cost of the money order (or multiple money orders).
  • Have the exact total in cash, on a debit card, or in traveler’s checks.
  • Make sure you have the full name and mailing address of the person to whom you’re sending or paying with the money order.
  • If you’re sending a money order overseas, make certain the country where the person receiving the money order is located is among the 30 countries accepting American postal money orders.
  • Complete the money order form including your address, as well as the address of the person to whom you’re sending it.
  • Pay for the money order, and mail it in the stamped envelope to the person you want to receive it.

Are Money Orders Safe?

Money orders are considered safer than cash or checks in case of loss or theft. That’s because you can cancel it if it hasn’t been cashed by the person receiving it.

You can reissue it to the recipient if it hasn’t been cashed; and if it has been cashed by someone, not the recipient, you can report them including details of where it was cashed, to law enforcement.

If the money order was stolen and cashed, however, you will not get a refund from the issuer. If it hasn’t been cashed, and you have the receipt, you can provide the issuer with that information along with paying a cancellation fee and have another money order issued.

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

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.

Wire Transfers

A wire transfer is an electronic transfer of guaranteed funds.11 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 $30-$40 in many cases) and more cumbersome, but they can’t be faked or canceled like money orders.

Electronic Payments

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.

Checks

Personal checks, while old-fashioned, are often good enough. Billers like utility companies and phone service providers still accept personal checks. Online sellers and might request a money order for added security.

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, go to a post office, or visit a bank branch. But other forms of payment can be 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 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. 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.

FAQs

1. Where can I get a money order? 

Your Exchange Check Cashing sells money orders for only .99 cents! They print up to $1,000.00 on each money order, and you can get as many as you would like.

2. Where can I cash a money order?         

Your Exchange Check Cashing cashes all types of money orders for 5%, or 2% if it is a money order you purchased from us.

3. What if I bought money order and don’t need it?         

Your Exchange cashes money orders for 5%, or 2% if you purchased the money order from one of our convenient locations.

4. What do I do if I lost a money order? 

Make a copy of the stub and mail it in to the money order agency. They will mail you your refund. Make sure to call it in lost or stolen first.

5. How much does it cost for a money order?       

Your Exchange Check Cashing has free money orders for .99 cents each. They come in $1,000.00 increments, and you can get as many as you will need.

6. How much are money orders?  

Your Exchange Check Cashing sells money orders for .99 cents each. We can print them off for up to

Bottom Line

 How Money Orders Work

Money orders have a fairly defined niche in the world of personal finance: When you need a more secure alternative to sending cash but can’t use a check, they may be your best bet. Money order cost is low, and they’re widely available at places you visit every day.

However, remember to evaluate alternatives to money orders, especially if you find yourself using them frequently. Cashier’s checks and wire transfers can add an extra layer of security if that’s your primary concern, but fees are higher.

Prepaid debit cards might be worth a look if you’re using money orders because you lack a bank account.

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