Cashier's Check vs. Money Orders: What's the Difference?

Cashier's Check vs. Money Orders: What's the Difference?
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Whenever you make a purchase that needs guaranteed funds, but you don't want to give someone cash, you could use a cashier's check or money order as an alternative. Offered only through a financial institution, cashier's checks offer security for purchases of larger amounts such as real estate transactions. Money orders, on the other hand, are available through many more places like stores and post offices and work well as a guaranteed payment source for smaller amounts like utility bills and car payments. Read on to learn more about how cashier's checks and money orders differ and when to use which option.

Understanding Cashier's Checks

Considered the most secure type of check, a cashier's check involves the financial institution personally guaranteeing that the check amount is available so that the payee doesn't need to worry about it bouncing. How this works is that the person requesting a cashier's check will provide the bank with cash directly or transfer from the funds from their bank account, and the bank moves the funds and holds that amount in its own account. You get a pre-printed check that you can sign and hand over to the payee. When the payee cashes the check, the money comes from the bank's account rather than your personal account.

Payers pay a fee set by the bank to obtain a cashier's check, and banks may set a very high limit or none at all for the check amount. This means cashier's checks work well for large transactions where the payee wants to know for sure they'll get the money. The payee can cash the check like any other through their bank, but they can also visit other check-cashing venues. Your bank can help you track the cashier's check if needed.

Exploring Money Orders

In contrast to cashier's checks, institutions besides regular banks and credit unions can issue money orders, and these payment documents offer more of a private way to send money since they're not linked to a bank account. The payer typically brings cash or a debit card to purchase the money order, meaning this is a prepaid payment method. The issuer, such as a post office or store, will guarantee the money, meaning that, like a cashier's check, the money order won't bounce. You receive the money order with the amount printed on it, and you fill out details like the payee's name and purpose of the money yourself.

Money orders work well for transactions ranging from regular bills to funds sent to family and friends overseas. Issuers set the payment limit, which often is between $700 and $1,000, but you can buy multiple money orders if needed. The payee can usually cash the money order where it was issued as well as places like banks, grocery stores and check-cashing stores. As long as you have the receipt, you can trace the money order or try to recover the funds if you lose it and it hasn't been used yet.

Cashier's Check Pros and Cons

The biggest appeal of a cashier's check is that the issuing bank's own account – and not the payer's bank account – guarantees the check amount, meaning this type of check has the highest security and assurance. These checks are also easy to obtain at a bank or credit union and available even if you have no bank account, and the payee can cash it at most places that cash checks. You can get these checks worth thousands of dollars, and the payee can usually get access to a very large amount quickly upon deposit, unlike with a personal check.

However, cashier's checks do come with fees that can reach $15 at some banks, although you may have luck getting them for free if you have a bank account with the financial institution. Without an account, you'll likely need to use cash to get the check rather than do a money transfer or use your debit card, and this can be inconvenient. Cashier's checks also have an association with fraud since scammers tend to send such checks to their victims, and this can lead to overdraft fees and lost funds if you fall for their tactics.

Money Order Pros and Cons

Like a cashier's check, a money order offers a good alternative when you need to make a purchase using cash since the funds are guaranteed. But unlike with cashier's checks, you can purchase money orders at a wider variety of places besides banks such as grocery stores, post offices, Western Union locations and convenience stores. If you don't have a bank account, you benefit from money orders since you can just use cash, although a traveler's check or debit card can also work for buying money orders. You usually pay a lower fee of up to a few dollars.

But if you need to send larger amounts of money such as over $1,000, you usually can't with a money order, and while you pay a lower fee, you'll need to buy the money order in person versus the alternative options cashier's checks allow. The person you're paying may also run into inconveniences when cashing or depositing the money order. First, they may need to deposit it in person versus through a mobile banking app. Second, since money orders are still less secure than cashier's checks, the initial money available may be less when the payee makes the deposit.

Buying Money Orders vs Cashier's Checks

To buy a money order, you can usually just take your money or debit card – but not a credit card – to a location such as a post office, grocery store, bank, convenience store or Western Union. The worker will ask about the amount and will have you pay the total amount plus fee. You can then fill out the money order with the name of the person you're paying, their address, any memo and your signature. You'll get a receipt, in case you need to track the money order or report it as lost or stolen, and you can simply mail the money order or hand it to the payee.

If you need a cashier's check, you can either get it through your current financial institution or another option nearby, but consider calling ahead to make sure they don't have restrictions for people who aren't customers. Depending on the bank, you could do the process online or by phone rather than coming in person; going in person is the fastest option, and you'll need to show your ID. In any case, you'll provide the amount, payee's name and any memo as well as pay the cashier's check fee and check amount, which can be through cash if in person and through a bank transfer otherwise. When you get the check and receipt, provide the cashier's check to the payee.

Choosing Between Payment Methods

When deciding between these forms of payment, consider the type of transaction, payment amount, potential fees and convenience. If you're providing a down payment of over $1,000 for a house or car, for example, you'd likely use a cashier's check from a financial institution since it offers the most security and supports higher amounts than money orders. On the other hand, a money order will usually cost less, be more convenient to purchase and will work fine for smaller amounts like your cable, electric or water bill or other purchases of goods or services under $1,000.

In either case, you can ask the payee what their preferences are and weigh the pros and cons of both options. Further, take care to avoid scams and never send money to people you don't know.