Banking » Guides » What Is A Money Order, How Does It Work, Pros & Cons
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What Is A Money Order, How Does It Work, Pros & Cons

A money order is an alternative to personal checks and cash payments. You must pay all the money that must be sent, plus a small fee.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024
The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024

The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.

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Table Of Content

What Is a Money Order?

A money order is an alternative to personal checks and cash payments. Despite many similarities, money orders are distinct from personal checks since, unlike the latter, they can’t bounce due to insufficient funds.

This is because all money orders are pre-paid. To get the money order, you must pay all the money that must be sent, plus a small fee. This makes money orders a more secure means of payment compared to regular paper or certified checks.

There are several places where you can get money orders, such as:

  • Banks
  • Post Office
  • Convenience stores
  • Grocery stores
  • Credit unions

Generally speaking, money orders are an affordable method of making a payment. According to Capital One, the commissions for money orders range from $1 to $5.

How Does Money Order Work?

When you purchase the money order, you have to specify the full name of the recipient, as well as the amount to be paid. This process makes it very difficult for thieves and fraudsters to get their hands on the sent funds.

Another important aspect of using money orders is that, unlike with checks, you do not need to wait several business days for the funds to clear and end up in your account. You can cash in money orders in a matter of minutes. 

This can be an important consideration for people who do not like waiting for several days to access the sent funds.

Money Order Pros and Cons

Money orders have some advantages over other means of payment; this is why they are still in use. However, there are some disadvantages to know before using it. Here are some of those upsides and downsides:

Pros
Cons
Funds Are Secured
Payment Limits
Low Fees
Fees
Money Orders Can Be Replaced
Possibility of Forgery
Several Means Of Payment
Snail Mail May Be Slow
Security Features

with money orders, the receiver is guaranteed the funds. With personal checks, there is always some risk that the check might bounce due to insufficient funds. However, money orders are pre-paid and, consequently, do not have such risks.

In most cases, fees with money orders are pretty low. 

In fact, at Post Office, the fee for money orders ranges from $1.65 to $2.20, depending on the amount. This is considerably lower than the fees associated with some other means of payment.

If your cash is stolen or lost, there is no way to replace it. However, with money orders, this is not the case. You get a receipt that lists all the necessary details when you purchase the money order.

So if, at some point, your money order is stolen or lost, it can be replaced, so you will not lose the funds.

There are several ways to purchase money orders. You can pay by cash, use debit cards, as well as checking accounts. So there are a variety of options to choose from.

Money orders have several security features, such as watermarks. This makes it difficult for fraudsters to forge false money orders and access funds through illegal means.

You can not transfer vast amounts of money through money orders. US Post Office has an upper limit of $1,000 on money orders.

Commercial banks and other financial institutions also limit money orders, typically within the $500 to $1,000 range. So if you want to make large payments, money orders might not be the best solution.

If your money order is lost or stolen, you must issue a stop payment to the company where you purchased your money order.

The fee for this procedure is typically higher than the money order fee itself and can be around $15. The exact amount depends on the issuer itself.

 

Money orders have several security features. However, this does not mean that it is impossible to forge them. 

There have been cases of money order forgeries in the past, and such things can also happen in the future.

Even if the money order has not got lost in the process, with snail mail, it might take several weeks for the order to reach its destination.

You can send it by faster mail, but this just adds additional expense to the process

When Does it Make Sense to Use a Money Order?

There are several cases when using money orders might make sense. Here are some of those examples:

  • You Do Not Have A Bank Account – If you do not have a bank account, but want to issue checks, then money orders can be a viable alternative. You can purchase money orders by cash, so in this case, you do not need to have a debit card or checking account to complete the transaction.
  • Use It For Savings – Some people use money orders to store some of their savings. Since money orders are widely accepted across the country, they can be cashed out at any time.
  • Gifts – You might want to give a cash gift to someone who does not have a bank account. In this case, purchasing a money order in their name might be one way to go about it.
  • You Can Only Use Wire Transfer – If you are looking for a cheaper alternative to wire transfers, then money orders can be one possibility to consider. The fact is that wire transfer fees can range from $20 to $50, depending on the financial institution in question. On the other hand, money order fees are within the $1 to $5 range.
When Money Order Make Sense
When It May Not Make Sense
You Do Not Have A Bank Account
You Are Making Large Payments
Use It For Savings
You Have a Checking Account
Gifts
You Want to Make a Fast Payment
You Can Only Use Wire Transfer

When Does Not Make Sense to Use a Money Order?

Despite all of the usefulness of money orders, there are several scenarios where they might not be helpful:

  • You Are Making Large Payments – Money orders have upper limits. In most cases, the maximum payment you can make via money orders is $1,000 for domestic payments and $700 for international payments. Money orders are not that useful if you have to make large payments. 

It is technically possible to split the payment into installments of $1,000. However, this is a very inefficient solution since you have to spend significant money and time to do so. In this case, it might be a better idea to turn to other methods of payment, which do not have such upper limits.

  • You Have a Checking Account – If you have a checking account and access to ACH and wire transfers, it does not make much sense to use money orders. The fact is that some banks offer ACH transfers for free, while others charge as little as $3 for a transfer.

So the fees here are very similar, but this is more convenient since you can do that using your online or mobile banking application.

  • You Want to Make a Fast Payment – If you're going to make an immediate payment, then sending a money order via mail might not be the best idea. It might take several weeks before the mail arrives at the destination.

In this situation, it might be better to use other means of payment so that funds could arrive at the recipient’s account faster. Most banks do offer same-day bank transfers in exchange for some fees.

Where to Get a Money Order Near Me?

You can purchase money orders in many places, as described in the list above. It is worth noting that besides banks, post offices, and stores, you can also get money orders at every Western Union and MoneyGram location.

Here it is also worth mentioning that no single mobile application available could show you all the locations where you can buy money orders.

However, what you can do instead is to make use of Western Union and MoneyGram websites or apps, which can help you to locate the nearest location. Most commercial bank websites also have a function to find the nearest bank branch.

Money Order Alternatives

If you think that money orders are not the best way for you to make a payment, there are several alternatives to consider:

  • Cashier’s Checks – This is similar to money orders, but there are some differences. In the case of a cashier's check, the bank takes money from your account and guarantees the payment. So there is no chance of the check bouncing. There is no $1,000 upper limit like with money orders. However, the fees are higher, with the average fee hovering around $10.
  • Money Transfers – You can transfer money using the services of Western Union, MoneyGram, or any other provider. Here also, there is no requirement to have a bank account. You can pay by cash and either transfer funds to somebody’s account or arrange for them to pick up cash at thousands of locations across the globe. There are cheaper services – for example, you can use Zelle – it's faster and more affordable than a money order.
  • Prepaid Cards – If you want to give someone a cash gift, one alternative way to do so is to provide them with prepaid cards. The recipient does not have to take all the money in this case. Instead, with prepaid cards, they can spend or withdraw as much money as they need at the time.

FAQs

Generally speaking, money orders do not expire as such. However, after some time, if the money order is not cashed out, the issuer might start charging some fees against it.

For example, in the case of Western Union, if the money order is not cashed out within 1 to 3 years, the company will charge fees against the principal. So in most cases, over the years, the value of a money order might be eaten up by fees.

The fee for a money order charged at the post office depends on the amount in question. If the fee is $500 or lower, then the fee is $1.65.

On the other hand, if the amount is from $500 to $1,000, then the post office will charge a $2.20 fee for a money order.

Many banks allow customers to deposit money orders via mobile banking applications. This provides a more convenient option for customers since they do not have to visit the branch in person to deposit money orders.

You can purchase money orders with most banks. The fees in some cases might be slightly higher than with Post Office. However, in most cases, those fees do not exceed $5.

For additional fees, you can return the money order if it has not been cashed yet. However, if the money has been cashed, the issuer is unlikely to issue refunds to you.

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Picture of Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
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