Money orders and personal checks offer secure ways for issuers to pay debts to lenders, and bills incurred in convenience stores or grocery stores and during business transactions. Both are more secure options than handing over a wad of cash, but the level of protection is different.
With a money order, the receiver, who may be afraid of scams, is assured that the funds will be there when he deposits and cashes the item. However, the amount is limited to $1,000 for each money order.
On the other hand, while is no guarantee for the payee with a personal check, it enables the issuer to pay large amounts and still call the bank to stop payment if the deal falls through. But cashier’s checks work the same way and are guaranteed.
Since personal checks and money orders tend to be common yet confusing, it would be wise to understand the difference between them.
What Is a Money Order?
A money order is a printed form that pre-specifies the amount of money that the payee, to whom you owe money, should receive. Some banks, credit unions and post offices offer this mode of payment.
According to the U.S. Postal Service (USPS), money orders cannot be funded by credit cards. Instead, you must use cash, a traveler’s check or a debit card to fund them.
To obtain a money order, you provide funds to the financial institution, such as your local post office or agent, which then issues you the money order, payable to whomever you designate and a receipt.
The recipient can deposit or cash it at their financial institution or receive the funds at some retailers. You'll pay a nominal fee for this service, generally no more than a couple of dollars, making it quite affordable.
Because the cash has already been provided, there’s no danger the money order won’t clear. The fact that you must fund it with your own money makes money orders a much safer payment option compared to personal checks that could bounce. So, the recipient is more likely to accept this mode of payment. Also, money orders never expire.
Remember, though, that the receipt you get is useful for tracking, but you can't simply stop payment on a money order as you can a personal check.
What Is a Personal Check?
A personal check is a form of payment that authorizes the recipient or payee to draw the prescribed funds against your bank account. You could use a savings account, but the checking account is better.
You can write a check yourself and, unlike a money order, there are no fees attached. You also can get proof that the check was deposited or cashed from your bank. In addition, you can stop a payment that hasn’t yet been presented, unlike when using money orders.
However, there’s no guarantee to the recipient that the funds will be there. If you write a check and you don’t have enough in your account, you and the recipient may be charged a fee by your respective financial institutions.
Also, the First State Community Bank states that most personal checks do expire after 180 days or six months.
What Is a Cashier’s Check?
A cashier’s check offers a guarantee to the payee by the issuing bank or credit union for a fee. As a result, cashier’s checks are excellent alternatives to personal checks since they are more secure.
A cashier’s check comes in handy when you can’t use a debit card or credit card. And you can easily pay large amounts with them. According to Forbes, the amount stated on the cashier’s check be paid directly from your financial institution’s account. However, the large payments will originally come from your checking account.
Cashier’s checks don’t really expire, which makes them similar to money orders and better than personal checks. However, when a cashier’s check is not claimed for a long time, the funds associated with it may be claimed by the state.
It is also worth noting that you can cancel a cashier’s check and get a refund. In that sense, it is similar to a personal check but different from a money order.
Cashier’s Check vs. Money Order vs. Personal Checks
A money order is an affordable way of paying someone who doesn’t trust you. But only use this payment method if you are sure you won’t need to ask for a refund.
However, a personal check works better for payees who trust you. They allow you to cancel payments when the deal goes sour. But if you want flexibility that allows you to ask for refunds and enhanced trust in your recipient, a cashier’s check may be a much better option though it is costlier.