What is a money order? (2024)

Money Management

How do money orders work?

Money orders can typically be purchased from a third-party distributor or financial institution. The sender pays the value of the money order plus any fees for the distributor to issue the order. This payment can be made with cash or with a debit card.

The distributor then prints the money order for it to be sent to the recipient, who can take it to their bank, financial institution, or other place, such as a convenience store or credit union, to cash it out. It’s important to note that the recipient may also have to pay fees to claim the money order. This can vary across distributors and may depend on the financial institution used to cash the money order.

How to purchase and fill out a money order

Let’s explore how to purchase a money order and the places that distribute them.

Money orders can generally be purchased from:

• Banks
• Credit Unions
• U.S. Postal Service
• Grocery stores
• Convenience stores
• Check-cashing stores
• Payday loan stores

The process for purchasing a money order will depend on where the sender decides to buy it. Once a distributor is found, the next step to consider is how to fill out the money order. In most cases, the distributor will be able to guide senders through the process.

Typically, when a money order is purchased, the sender fills out the name of the recipient on the money order form, along with the payee address, date of purchase, and the amount they wish to send. Most money orders have a maximum limit of $1,000¹, but more than one money order can be purchased if more than $1,000 is needed.

When sending multiple money orders, the distributor may ask for ID and issue a special form to be filled in. These extra precautionary measures are used to help prevent money laundering.

The sender will also need to provide their address and account number (if the money order is for a bill) and sign the money order to complete the transaction. Once complete, the sender will receive a receipt as proof of purchase. The sender should keep this until the money order has been claimed. Without a receipt, it may be difficult to track a money order.

How to cash a money order

Cashing a money order is generally straightforward. Once the recipient receives a money order, they can take it to their chosen place to claim the cash.

The recipient may have to pay a fee to cash the money order, but this is not always the case and depends on the rules set by the distributor. There is no set time for the recipient to cash a money order; they don’t expire2. However, depending on the state and issuer, if a money order is cashed more than a year after its date of issue, it may incur extra service charges. Additional charge information will be on the back of the money order.

What is a digital money order?

Instead of a physical piece of paper being issued, digital money orders are sent via digital technology and online services. Some potential differences between traditional and digital money orders include:

• Paper money orders need to be purchased in person, while digital money orders can be bought online.

• Traditional money orders are purchased with cash, but a digital money order can be paid for with most online payment methods such as a debit or credit card.
• Digital money orders are often quick, as they are electronically sent, and the recipient can cash online. This means they may potentially receive the money faster as it does not need to be cashed at a physical location.
• A digital money order may be easy to track because the sender is given a reference number to track the money order. A digital money order has a lower risk of theft or fraud because it’s sent electronically with enhanced safety measures such as data encryption to protect the e-transfer.
• When it comes to international payments, a digital money order can potentially be a cheap and quick way to issue a money order.
• Technical issues or service disruptions in the platform or network may lead to delays or failure in processing digital money orders.
• Some digital money order services might not be widely accepted or integrated into all financial systems or businesses.
• Digital money orders could be vulnerable to cyberattacks, such as hacking and data breaches.

Potential advantages and disadvantages of money orders

Money orders can offer various potential advantages. Some examples are:

• Money orders don’t include sensitive information, so they may be better protected againstfraud.
• Recipients can cash them at any location that cashes money orders. They don’t have to go to the same place that issued the money order.
• It may be possible for recipients to avoid cashing fees by depositing the money order into their bank account for free. Recipients should check with their bank to see if fees apply.
• Money orders can be purchased in one country and cashed in another country.

However, there are still potential downsides to money orders, such as:

• Traditional money orders may be hard to track, especially if the sender loses the receipt.
• There are fees to pay to issue a money order and, in some cases, to claim one, too.
• They can be lost or stolen, but the sender can cancel the money order before it is cashed.
• They have a maximum limit of $1,000.

Are money orders safe?

One of the most important factors to consider when sending money is whether the method is secure and reliable. So, are money orders safe? Yes, money orders are generally considered a safe method of sending money. While digital money orders may provide greater security and protection, traditional paper money orders can also be a safe way to transfer money.

A money order can only be claimed by the person or business they are addressed to, which makes them a secure way of sending money. If a sender suspects that a money order has been lost or stolen, they can cancel the order to prevent someone fraudulently cashing the money order.

Alternative ways to send money

There are several money order alternatives for sending money to an individual or business. Some of these methods include wire transfers, bank transfers, and cashier checks.

Wire transfers electronically transfer money from one bank or financial institution to another. A bank transfer is the transfer of money between bank accounts that may not involve a wire transfer. Cashier checks could be used to send money. In all cases, they avoid the need to exchange cash and may be suitable money order alternatives.

Learn about sending and receiving money with PayPal.