What is a Money Order?
A money order is a document that works very much like a check, with a few key differences. You can use money orders to make payments, however unlike a check they are “secured” — the amount is prepaid. The issuer of a money order asks for payment up front before they’ll issue the document. So rather than transferring funds from one account to another, you have to guarantee the amount of a money order with cash (or another form of payment).
What this means is that, while checks can “bounce” if there isn’t enough money in account to pay out, a money order is prepaid and the recipient is guaranteed the payment.
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How Do Money Orders Work?
While checks are strictly bank account to bank account transfers, money orders don’t necessitate bank accounts. Checks are communications between banks, authorizing a transfer. The recipient doesn’t need a bank account in order to cash a check, but the payer needs a bank account to issue one.
Money orders, on the other hand, can be paid for in a number of ways and aren’t exclusive to banks. The payer would go to an institution that offers a money order, then pay the amount they want to send directly to the institution, either by cash, debit card, or other method. They fill out the money order, and send it to the recipient. The money is held within that institution, so the recipient can collect it directly.
Who Uses Money Orders?
Money orders are commonly used when a check isn’t ideal. This can include international transfers of money, in order to avoid bank wire transfer fees. Banks have a more difficult time communicating internationally, often requiring wire transfers to move funds. Wire transfers are often less than ideal forms of payment because of relatively high associated fees and the length of time these transfers take to complete.
Money orders are also often used if there is a concern that a check will bounce. Some businesses, especially small businesses don’t accept personal checks due to the risk of them bouncing. Money orders make a good substitute in those situations.
Additionally, if for some reason you’re uncomfortable with revealing your bank account information, money orders don’t include account numbers. Money orders also represent a more secure way to send cash directly, as the recipient can “cash” a money order without the need for a bank account.
Money orders can be a useful tool for small business owners, because they are so much less risky for recipients than traditional checks. It’s a good idea to get familiar with them, and offer them as a customer payment option.
Where to Get a Money Order
Money orders are more flexible than checks because they can be acquired from a wide range of businesses. Just like checks, you can get one from your bank or credit union, but there are also, a number of other places you can get a money order, including;
- The U.S Post Office.
- Some large department stores, such as Walmart, Kroger, K-Mart, Safeway, and even convenience stores such as 7-Eleven.
- Agencies that specialize in money orders, such as Western Union.
How to Fill Out a Money Order
Money orders are quite simple to fill out, but it’s important to ensure you’re doing so correctly.
- Arrive prepared with a method of payment, such as cash or your debit card. If you can avoid it, don’t use a credit card to pay for money orders.
- Fill out the full name of the recipient of money order.
- Fill our the “purchaser” section with your information, including your address. You are the purchaser.
- If you’re paying a bill, include your account number for that billing account.
- Sign where the form indicates “purchaser’s signature.”
- Keep the receipt, in case there’s a problem.
How to Cash a Money Order
The first step when you receive a money order from someone is to “endorse” it by signing the back of it. Then it’s ready either to cash or deposit into an account.
Where Can I Cash a Money Order?
The best way to cash a money order is to take it to the institution that issued it. Doing so is likely to incur the least fees, and be the quickest way to receive the money. That is not, however, the only way to receive a money order. You can take a money order to any location that offers money order services to cash it.
Generally, the only reason you would want to avoid cashing a money order with the company that issued it is if you need to deposit it directly into a bank account. The convenience might be worth the potential fee. You can do that by going to your bank or credit union.
The other reason you might cash a money order somewhere else is if the issuing company simply doesn’t have a location close enough to you for convenience. In that case, you may want to research which option will incur the least fees.
Money Order Scams
Law abiding citizens should recognize that there is risk attached to the use of money orders.. If stolen or manipulated correctly, they allow a scammer to remain anonymous, and because they’re secured, they’re guaranteed not to bounce. Once someone has cashed a money order as part of a scam, it’s very difficult to recover the money, because they can exchange it directly for cash, with no account or other identifying information required.
Don’t send money orders to people you don’t know, especially if someone from overseas is asking for a money order. Be wary of scammers who might pretend to be authorities, family members in trouble, or companies, in order to get you to send a money order.
Be aware of the current methods scammers are using to defraud people and protect yourself with knowledge. Be prudent in who you send money orders to, and be especially careful on services like craigslist, where scams are rampant.
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Ben Steele is a writer, theatre(re) professional, and nonprofit administrator. He was born in England, spent his teen and early 20s in Canada, and now lives in America. Please excuse his occasionally confused voice and the odd recalcitrant u after an o.
This post was updated March 27, 2019. It was originally published March 29, 2019.