What Is a Money Order, How Does It Work, and How Do I Get One? (2024)

What Is a Money Order?

A money order is a safe alternative to cash or a personal check, usually issued by a government or banking institution, that works similarly to a check. A money order can be cashed or deposited into a bank account.

Money orders are readily accepted and converted to cash and are often used by people without access to a standard checking account. They are an acceptable form of payment for debts, both personal and business, and can be purchased for a small service fee from most institutions. Money orders were first issued by American Express in 1882 and later became popularized as traveler's checks.

Key Takeaways

Money orders are a safe alternative to using cash or checks to pay smaller debts.
You can purchase money orders at banks and credit unions, and also at a variety of locations like big-box stores, post offices, and even some gas stations.
When you buy or cash a money order, you may have to pay a small fee.
If you lose a money order, it usually can be replaced for a fee.
International money orders can be an inexpensive way to send money across the border and overseas quickly.

How Money Orders Work

If you buy a money order, you will have to fill out the name of the recipient on a form and the amount that the recipient should receive. Most money orders have a maximum limit of $1,000. Therefore, you would need to purchase multiple orders if you need more than that amount. Be sure to fill out the money order carefully; it's a one-off purchase and you need to keep good records of it.

The financial institution or authorized body that issues the money order to the person paying will have the name of the person or entity being paid, the issuer’s name, and the amount of money that can be cashed. This dollar value doesn't include the fees charged. Factor in all costs when purchasing money orders. A bank or credit union normally will charge more than a convenience store to issue money orders.

When you pay for a money order, it comes with a receipt that includes the serial number of the money order. You should keep this information until you're certain the money order has cleared. Without a receipt, tracing a money order can be difficult or even impossible.

A money order is harder to trace than a check, so keep your receipt until you are sure the order has been received and cashed.

Advantages and Disadvantages of a Money Order

Advantages

Advantages Explained

Doesn't include sensitive information: In some situations, paying with a money order can be safer than paying with a personal check. That's because personal checks include the account holder's routing number and bank account number printed on the bottom—information can be stolen and used to create and sign fraudulent checks. In contrast, money orders don't include personal information about the purchaser.
Recipient can cash it at their local bank or credit union: The person who receives a money order doesn't necessarily have to go to the same place that sold the money order or the sender's bank. They can cashed it at their local bank or credit union, though this could mean they have to wait to get the cash.
Can be deposited into a bank account for free: A recipient can deposit a money order into a bank account, much as you would do a check. Depositing money orders is a good option for recipients concerned about the fees charged to cash the certificates at other locations.
Can be issued in one country and cashed in another: Money orders can and often are used to send money outside the country. An issuer with multiple branches in different countries can issue a money order in one country that can be cashed in another country. International money orders thus provide an inexpensive and swift way to send money across the border.

Disadvantages Explained

Can be harder to track than a personal check: To track a money order, the sender must fill out tracking forms and pay an additional fee to learn whether the money order has been cashed. The entire process for researching the status of a money order can take weeks. However, the U.S. Postal Service, also known as USPS, offers an online money order inquiry service that allows buyers to input a money order number and get an update on its status.
Buying and cashing the money order can incur a fee: When you buy a money order you may need to pay a small fee, and the same goes for cashing one if you cash it somewhere else besides your own bank or credit union. Depositing it into a bank account or cashing it at the issuer's office are good options for bypassing fees for cashing a money order.
Funds could be delayed, depending on where it's cashed: Just note that if you cash a money order at your local financial institution and it's not a branch of the issuer, you might not be able to get all of the money right away. It depends on your bank's funds availability policy.

Can be fraudulent: Some unscrupulous people create fake money orders. Be wary about receiving one from someone you don't know, and don't spend the cash from money orders you deposit in the bank until you know the bank was able to cash them.

How to Buy a Money Order

You can buy a money order at any bank or credit union, as well as most grocery stores, convenience stores, and any store that offers check cashing or money services such as MoneyGram or Western Union. The U.S. Postal Service also offers money orders.

To order one, you simply need to bring enough money to pay for the money order, either in cash or with a debit card.

For transactions above $3,000, you may be asked to present your ID and fill out a special form. This information is used to prevent money laundering.

How Much Do Money Orders Cost?

Although there is an additional cost for issuing a money order, the fee is generally only a small fraction of the value of the order. For example, the U.S. Postal Service charges $1.75 for money orders of up to $500, and $2.40 for orders from $500.01 up to $1,000. Fees are lower for money orders issued in military postal facilities.

Money orders from commercial institutions may have different prices, but the fees will tend to be similar. However, international money orders may incur higher fees.

Money Orders vs. Cashier's Checks

A cashier's check is similar to a money order, in that both are sometimes used for payment in situations where cash or a personal check would be impractical. Neither can be bought with credit—you have to use cash.

But unlike a money order, a cashier's check is simply a check written by a financial institution against its own assets. This is considered more reliable than a personal check because there is no chance of the check bouncing.

For this reason, cashier's checks are frequently used to make large purchases, such as for a house or vehicle. Whereas banks might place a hold on a personal check for that much money, funds issued by a cashier's check should be available the next business day.

In contrast, money orders are typically used for smaller transfers, such as for rent or mortgage payments. Many institutions, such as the U.S. Postal Service, cap money orders at $1,000.

Alternatives to Money Orders

In addition to checks and money orders, other ways to send guaranteed funds to an individual or business include traveler’s checks, wire transfers, bank drafts, and cashier's checks. But money orders are frequently used for payment in situations where the party being paid isn't set up to receive cash.

In some cases, a personal check, debit card, credit card, or even online payment apps might also be acceptable for payment. However, money orders are slightly different from these alternatives. Unlike card or electronic payments, the recipient of a money order doesn't need any special technology to accept a money order. And, unlike checks, a money order can't bounce.

How Do You Fill Out a Money Order?

When you buy a money order, you will need to include information about the purchaser (you) and the recipient. Write the name of the intended recipient in the "Pay to the Order" field, and your full legal name and address in the appropriate fields. Fill in the amount to be transferred. Some money orders may not ask for your address. Finally, sign and date the money order, and keep the receipt.

Where Can I Cash a Money Order?

You can cash a money order in the same places that issue money orders, such as a bank, credit union, post office, check-cashing store, or even some convenience and grocery stores. You will need to endorse, or sign, the order and verify your identity. There may be a small fee for cashing the money order, which you can skip by depositing the money order into a bank account.

How Long Is a Money Order Good For?

Money orders don't expire, but depending on the state and issuer, they may incur additional service charges if you cash them more than a year after they were issued. These terms will be described on the back of your money order. However, domestic money orders from the U.S. Postal Service will never expire or lose value.

The Bottom Line

A money order allows the recipient to receive immediate cash payment from a bank or other financial institution. For that reason, money orders are a popular way to make small to medium-size payments in circ*mstances where cash or personal checks aren't practical. Unlike cash, lost money orders can be replaced (with a receipt presented), and they can't bounce due to insufficient funds.

As an expert in financial transactions and payment methods, I have a comprehensive understanding of the concepts discussed in the provided article on money orders. My expertise is grounded in both theoretical knowledge and practical experience, making me well-equipped to provide insights into the intricacies of money orders.

Money Order Basics: A money order is a secure alternative to cash or personal checks, typically issued by a government or banking institution. It functions similarly to a check and can be cashed or deposited into a bank account. Money orders are widely accepted and are often used by individuals without access to a standard checking account. They serve as a reliable form of payment for both personal and business debts and can be obtained from various institutions for a small service fee.

Historical Context: Money orders trace their origins back to 1882 when American Express first issued them. Over time, they gained popularity, especially as traveler's checks.

Key Takeaways:

Money orders are a safe alternative for smaller debts.
They can be purchased at banks, credit unions, big-box stores, post offices, and some gas stations.
Fees may apply when buying or cashing money orders.
Losing a money order can be resolved with a replacement for a fee.
International money orders offer a cost-effective way to send money across borders quickly.

How Money Orders Work: When buying a money order, the purchaser fills out details such as the recipient's name and the amount. Money orders typically have a maximum limit of $1,000. The financial institution or authorized body issuing the money order includes information about the recipient, issuer, and the amount.

Advantages and Disadvantages: Advantages include the lack of sensitive information, the ability for recipients to cash it at local banks, deposit into bank accounts, and international use. However, disadvantages include the challenge of tracking, potential fees, delayed funds, and the risk of fraud.

How to Buy a Money Order: Money orders can be purchased at banks, credit unions, grocery stores, convenience stores, and other locations offering money services. The U.S. Postal Service also provides money orders. Transactions above $3,000 may require ID verification to prevent money laundering.

Cost of Money Orders: While there is a fee for issuing a money order, it is generally a small fraction of its value. Fees vary, with the U.S. Postal Service charging $1.75 for up to $500 and $2.40 for $500.01 to $1,000. Commercial institutions and international money orders may have different fee structures.

Money Orders vs. Cashier's Checks: Money orders and cashier's checks are similar but have distinct purposes. Cashier's checks, drawn against a financial institution's assets, are considered more reliable for large transactions, while money orders are typically used for smaller transfers.

Alternatives to Money Orders: Other secure payment methods include traveler's checks, wire transfers, bank drafts, and cashier's checks. Money orders offer simplicity, especially for parties not set up to receive cash.

Filling Out a Money Order: Buyers need to include purchaser and recipient information, the amount, and sign and date the money order. Keeping the receipt is crucial for tracking.

Cashing a Money Order: Money orders can be cashed at banks, credit unions, post offices, check-cashing stores, convenience stores, and grocery stores. Endorsing the order and verifying identity are required, with potential small fees that can be avoided by depositing into a bank account.

Money Order Expiry: Money orders don't expire, but some issuers may impose service charges after a year. Domestic money orders from the U.S. Postal Service, however, never expire.

The Bottom Line: Money orders offer a secure means for recipients to receive immediate cash payments. They are particularly popular for small to medium-sized payments in situations where cash or personal checks are impractical. Unlike cash, lost money orders can be replaced with a receipt, and they cannot bounce due to insufficient funds.