What Is a Money Order?

What Is a Money Order?
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It’s never been easier to pay for goods and services. You can send a payment electronically, use a credit card or pay with cash you withdrew from the bank. But there are times when none of those is an option. A money order can serve as a safer alternative to cash and personal checks.

What Is a Money Order?

If you’re sending money through the U.S. Postal Service, you may find yourself limited in your payment options. Cash may work on the recipient’s end, but you won’t be protected if it gets lost along the way. One of the best things about a money order is that it can be replaced by the original issuer if it doesn’t arrive at its destination.

But often the reason you’ll purchase a money order is that you’re buying something and the seller only accepts that form of payment. You may also use money orders in lieu of personal checks or debit cards if you don’t have a bank account. You can typically purchase a money order easily. You can buy one at the post office, convenience stores, department stores, grocery stores, banks and credit unions, drugstores and check-cashing locations.

History of Money Orders

The history of money orders offers a decent explanation of their purpose. In the mid to late 1800s, cash was routinely sent via the postal service. For that reason, post offices and mail carriers became targets for thieves.

To combat the problem, postmaster Montgomery Blair came up with the idea of a money order, which would also make it easier to send money to soldiers serving in the Civil War. The program immediately took off, with families taking advantage of the easy way to send money to soldiers. Later, immigrants used money orders to send money to relatives in their native countries.

Purposes of Money Orders

At one time, if you wanted to pay for an item, you only had a few options, especially if you were sending payment through the postal system. Often you’d pay by personal check, which clearly displays your checking account number to anyone who receives it. Recipients also didn’t like personal checks because they can take ​two to five​ business days to “clear,” which puts them at risk if sufficient money isn’t in the buyer’s account to cover it.

Here are some reasons you might use a money order:

  • The seller requires it
  • You prefer not to give out your checking account number
  • You don’t have a checking account and cash isn’t an option
  • You’re sending money internationally

Fees for Money Orders

You’ll pay a small fee when you purchase a money order. This fee is based on the dollar amount of the money order. For money orders up to ​$500​, the USPS charges ​$1.25​ per money order. For amounts above that, you’ll pay ​$1.75​. The USPS limits money order amounts to ​$1,000​.

If you want to save a little money, you may want to shop around. According to The Simple Dollar, Walmart has the lowest money order fee, at ​$0.88​, while Western Union’s fee is slightly higher, staying under ​$1​ for amounts up to ​$1,000​.

The only other fee you’ll face is a replacement fee if you lose it. The post office charges ​$7.60​ per money order to issue a replacement money order.

Limitations on Money Orders

There are some limitations that come with money orders. One is the dollar limit. Although it can vary by issuer, typically you’ll find that you can’t buy a money order for more than ​$1,000​. If you need to make a payment higher than that, you’ll have to purchase multiple money orders, paying fees on each.

Another limitation is how you can pay for a money order. In most cases, you’ll have to use either cash or a debit card to buy a money order. There are a few select merchants that will allow you to pay using a credit card, but you should be very careful with this. Some credit card issuers consider a money order purchase a “cash advance,” which can come with hefty fees.

International Money Orders

Money orders can be a great way to send money to areas outside the U.S. The post office currently provides money orders that are good in 26​ locations, including the Bahamas, Ecuador and Jamaica. The USPS no longer sells money orders destined for recipients in Japan, nor will it cash money orders from senders located in Japan.

You can purchase international money orders at any post office location using cash, a debit card or a traveler’s check with a fee of ​$10.25​, plus the processing fee charged by the receiving country. Your international money order will be printed only with the dollar amount. You’ll need to fill in the other information.

Money Order Vs. Wire Transfer

A wire transfer can sometimes be a better option, particularly if you’re sending money internationally. You can do this through the post office’s Sure Money program, which has payout locations set up in participating countries. It is slightly pricier, at ​$14.55​ for up to ​$750​ or ​$20.75​ for up to ​$1,500​, but it’s faster and you can send to Mexico, Columbia and Argentina. But there are plenty of other options for international transfers, including Western Union and TransferWise.

If you’re wiring money domestically, you may find you save time, but fees can be higher. Wire transfers are quicker and more secure, provided you verify that the receiving party is legitimate. Due to all the wire transfer scams, you’ll probably want to limit your use of them for purchases like home closings.

Money Order Vs. Prepaid Debit

Prepaid debit cards can be a great alternative to a money order in certain situations. If you don’t have a credit or debit card, for instance, and you’re trying to pay someone who takes those forms of payment, prepaid may be the way to go. You won’t have to worry about getting the money order to the seller and it possibly getting lost along the way.

But prepaid debit cards can be expensive. It’s important to look closely at the fees that come with any prepaid debit cards you purchase. Walmart’s prepaid card tends to have low fees and great perks, such as free bill pay and free cash at Walmart MoneyCenters. With any prepaid card, you can not only use them online, but also for local purchases where credit and debit cards are accepted.

Money Order Vs. Cashier's Checks

In some cases, you’ll be asked to provide a cashier’s check as payment. Cashier’s checks are often required for large purchases like closing costs on a house or car sales. You’ll have to get your bank to issue a cashier’s check, and the teller will ensure the funds are available before issuing it.

However, money orders do have some benefits. You have plenty of purchase options outside of your bank, for one. You’ll also have an easier time replacing it if necessary. With a cashier’s check, it can take ​30 to 90 days​ to be reissued. Money orders simply require you to take the receipt to the original purchase location and have it reissued immediately, sometimes with a small fee.

Cashing Money Orders

In some instances, you may be the one holding a money order that you need to cash. You can cash a domestic money order at any post office or deposit it into your own bank account. In some instances, you can even get your mail carrier to cash it for you. With your own bank, you’ll deposit a money order as you would a personal check, but the post office will require a government-issued ID with the name matching the name written on the money order.

For international money orders, the same will apply. However, it’s important to check to make sure your money order is coming from one of the USPS’s partner countries. If you have trouble depositing it into your bank account, your local post office is an option, but it will only cash money orders from one of those countries.

Avoiding Money Order Scams

One of the biggest draws of a money order is that it’s a relatively secure form of payment. But money order scams exist. If someone has offered to pay you using a money order, you need to be aware of these scams. Here are some telltale signs of a money order scam:

  • The payer insists on paying by money order. In some cases, a scammer may offer a cashier’s check as an alternative, but this can be counterfeit, as well.
  • The payer offers to pay an amount above the purchase price you quoted. Basically, if it seems too good to be true, it’s worth further inspection.
  • The payer requests some of the money back in either cash, a wire transfer or some other type of payment.
  • If the money order is presented in person, look for watermarks, especially with a USPS-issued money order. Also look closely at the dollar amount to make sure it hasn’t been altered.

If you suspect the money order you’re being offered may be a fraud, stop and take time to investigate. For remote payers, ask to see an image of the money order before they send it by mail. You can always contact the issuer. For the USPS, call ​1-877-876-2455​ for suspected fraud or ​1-866-459-7822​ if you have a counterfeit money order in hand.

Prevent Money Order Theft

Money order scams aren’t the only concern. If you’re sending money through the mail, whether it’s cash, check or money order, it can be intercepted. With a check or money order as your payment method, you can have it replaced, but the process is a hassle and will result in delays. If you can avoid it, you’ll be better off.

Before the money order leaves your hands, make sure you have the serial number and amount jotted down. This may be on the receipt you were given when you purchased it. Also make sure someone can’t see the money order through the envelope if you’re sending it through the mail. You can do this through security envelopes or concealing it with a piece of paper.

Check a Money Order’s Status

One of the best things about a money order is that it creates a paper trail. You can track a money order in progress as long as you have the serial number and dollar amount of the document.

Lost and Stolen Money Orders

Ideally, every money order will land safely in the recipient’s bank account. But in the event it doesn’t make it, you’ll need to know what to do to get a new one issued. Make sure you have the serial number and dollar amount and go to the original issuer of the money order. Here are the instructions for some of the most popular issuers.

  • USPS: To request a replacement money order from the post office, you’ll need to go to a local branch. Ask a counter employee to start a Money Order Inquiry. Once the inquiry has started, you can monitor the status on the Check Money Order Status page. It can take up to ​30 days​ to confirm a money order has been lost, and only then will a replacement be issued.
  • Walmart: Use the Money Order Information form to track the status. If your money order can’t be found, you’ll be prompted to request a replacement.
  • Western Union: The best thing about Western Union’s money orders is how easy they are to report lost. Simply look at the back of the money order and you’ll find a money order tracing-refund request. You can alternatively submit the Money Order Customer Request form for a money order refund.

As with any form of payment, there are situations where money orders make sense. Shop around to make sure you’re getting the best deal possible on fees. Also compare them to prepaid debit cards, cashier’s checks, personal checks and wire transfers to find the best option for your needs.