What is a Money Order?

Ben Steele
The Western Union name and logo on a yellow signpost.
Reading Time: 5 minutes

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 an account to pay out, a money order is prepaid and the recipient is guaranteed the payment.

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 to cash a check, but the payer needs a bank account to issue one.

Money orders can be paid for in a number of ways and aren’t exclusive to banks. First, the payer would go to an institution that offers a money order. Then, the payer would pay the institution for the money order, either with cash or debit card, or other methods. The payer fills out the money order, and sends it to the recipient. The institution that issued the money order hangs onto the payer’s money, so the recipient can collect it directly.

Who Uses Money Orders?

Money orders are commonly used when a check isn’t ideal. This may include international transfers of money when the parties involved want 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 such situations.

Additionally, if for some reason you’re uncomfortable with revealing your bank account information, money orders don’t include account numbers. Money orders are also 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 Can I Buy 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;

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. Utilize the following tips when filling out a money order:

  • 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 the money order.
  • Fill out 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. 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 will 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 one-stop convenience might be worth the potential fee. You can do this 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.

Are Money Orders Safe?

Law-abiding citizens should recognize that there is a 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 — trying 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 regardless of whether you’re sending a money order or making an electronic transaction, be especially careful when using vendors such as Western Union and Venmo, through whom transactions are permanent.

Alternatives to Money Orders

There are many alternatives to money orders, besides checks. A few of these include cashier’s checks, wire transfers, and electronic transactions. Each of these serve similar purposes — to offer “guaranteed” funds. Some, however, may be safer than others.

Cashier’s Checks

A cashier’s check is a check drawn from a bank’s own funds and signed by a teller. These checks are guaranteed not to bounce as the money is drawn directly from your account and placed into the bank’s account. Cashier’s checks are still vulnerable to scams. People should be wary of who they accept a cashier’s check from.  

Wire Transfers

A wire transfer is an electronic transfer of money across a network administered by hundreds of banks or transfer service agencies around the world. As such, these transfers allow people in different geographical locations to send and receive money relatively easily and quickly. Most wire transfers take about two business days to process.

Electronic Payments

Electronic payments may be used to refer to any transaction of money, goods, or services on the internet. There are various services offering electronic payment methods, such as Venmo, PayPal, and Apple Pay. Each of these offer their own level of security and come with their own risks.

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