Money Order : History, Work, Advantages & How to Buy

What is a Money Order?

A money order is a safe way to pay for things, like a prepaid check. It’s a piece of paper issued by a post office, government, or bank that tells the person getting it to pay someone else a certain amount. Money Orders are great because they’re prepaid and guaranteed, so they’re safe to use when checks aren’t accepted or you need a secure way to pay. They’re convenient for rent or bills when you can’t use cash.

Key Takeaways

• Money Orders are a safe way to pay because only the person you’re paying can cash or deposit them.
• If you keep the receipt, you can track your payment and get your money back if the money order is lost or stolen.
• If you need to refund a damaged or spoiled money order, the United States Postal Service will replace it for free if you return the part you can cash along with the receipt.
• If you need to check if a money order is real, you can call the U.S. Postal Service Money Order Verification System to check.
• You shall cancel a money order if it hasn’t been cashed. Just contact the issuer’s customer service or use their website to track it and start the cancellation process.

History of Money Order

In the late 18th century, Britain introduced the concept of money orders, but it didn’t catch on at first due to high fees. Cash or checks were preferred over this new system. However, things changed when a private buyer acquired the system and reduced the fees, making money orders more popular. A significant turning point in the history of money orders was when the British Post Office recognized its value. They saw it as a secure way for people to send money without the risk of theft. Unlike cash, which could easily be stolen and deposited into any account, a money order was legally binding and could only be deposited into the specified recipient’s account. The Post Office took over the system, improved its profitability, and turned it into a significant source of revenue.

How do Money Orders Work?

1. Purchasing a Money Order: Buying a money order is pretty straightforward. You can get one with a debit card, cash, or sometimes a credit card (but remember, this might count as a cash advance). You might find them at places like credit unions, post offices, banks, and stores like Walmart. When you buy a money order, you tell the issuer how much money you want to send and who should get it. There’s usually a small fee, less than $15, that you will need to pay along with the money order amount.

2. Filling Out a Money Order: Once you’ve got your money order, you need to fill it out. You’ll have to write the name and address of the person or firm who should get the money. Then, you’ll also have to write your name and address. There’s often a spot where you can write a note about what the payment is for. And don’t forget to sign the front of the money order before you send it off.

3. Cashing or Depositing a Money Order: If you are the one getting the money, you’ll need to sign the back of the money order to cash it or deposit it into your bank account. Money Orders are considered safe because they are prepaid, and the money is guaranteed by the place that issued them. So, unlike personal checks, they can’t bounce because of not enough money.

4. Replacing a Lost or Stolen Money Order: If you lose a money order or it gets stolen, don’t panic. You can contact the place that issued it to cancel it and get a new one. You shall have to pay a fee for using this service. You will need to show them your original receipt, and it could take up to a month for them to process the replacement.

Advantages of a Money Order

1. Safe and Reliable Payments: Money Orders are a dependable way to make payments because they are prepaid and backed by the institution that issues them. It means that when you send a money order, the recipient can trust that they will receive the full amount without any issues.

2. Tracking and Accountability: One great thing about money orders is that you can track and trace the funds. It will add an extra layer of security for both the person sending the money and the one receiving it. You can easily keep tabs on where your money is and when it’s been received.

3. No Risk of Bouncing: With money orders, there’s no need to worry about the payment bouncing. Unlike personal checks, which can bounce if there’s not enough money in the sender’s account, money orders are prepaid. It guarantees that the recipient will get the full amount without any surprises.

4. Access for Everyone: Money Orders provide a convenient payment option for people who don’t have bank accounts. Even if you don’t have a bank, you can still send and receive money orders, making it easier to handle your finances.

5. Secure Money Transfers: Sending money orders is a secure way to transfer funds, especially compared to sending cash through the mail. Since money orders can be easily tracked and traced, you can have peace of mind knowing that your money will reach its intended destination safely and securely.

Disadvantages of a Money Order

1. Limited Acceptance: While money orders are a secure payment method, they may not be accepted everywhere. Recipients often need to cash them at specific locations, such as banks or post offices, which can cause delays in accessing the funds. This limited acceptance can be inconvenient, especially if the recipient needs the money quickly.

2. Fees Involved: There are fees associated with both purchasing and cashing money orders, which can add up, especially for frequent transactions. These fees vary depending on the issuer and the amount of money ordered. If fees are charged on both ends of the transaction, it can further increase the overall cost.

3. Lost or Stolen Concerns: If a money order is lost or stolen, recovering the funds can be challenging. There may be fees and delays associated with the process of canceling the lost money order and requesting a replacement. It can be frustrating for both the sender and the recipient, as it adds extra time and effort to the transaction.

4. Forgery Risks: Money Orders, like other financial instruments, can be formed, resulting in risks of fraud for both the issuer and the recipient. It is essential to be attentive and verify the authenticity of a money order before accepting it. Forgery issues can lead to financial losses and legal complications for all parties involved.

5. Processing Time: Sending money orders through traditional mail can take time to reach the recipient, especially if they are located far away. It can cause delays in transactions compared to instant electronic payment methods like bank transfers or digital wallets. It is pivotal to consider the processing time when choosing to use money orders for transactions.

How to Buy a Money Order?

• Determine the Amount: First, decide on the amount of cash you want to send through the money order. It is the total sum that the recipient will get.
• Choose a Location: Visit a location that gives money-order services. It could be a post office, bank, credit union, or certain retail stores like Walmart.
• Payment: Provide the necessary cash or use a debit card to pay for the money order amount along with any associated fees. Typically, these fees are relatively low, often less than $15.
• Fill Out the Money Order: Complete the money order by providing the required information, like the recipient’s name and address (the person or business you’re paying), your name and address as the purchaser, or any relevant notes or account numbers in the memo field.
• Sign the Money Order: Once you’ve filled out all the necessary information, sign the front of the money order to finalize the transaction.
• Keep the Receipt: After completing the transaction, you will receive a receipt containing a tracking number. Hold onto this receipt, as it will be essential in case you need to replace the money order if it gets lost or stolen.

Key Facts to Remember

Money Orders are typically purchased using cash or a debit card; credit cards are generally not accepted for money order purchases as they may be treated as cash advances. Both the purchaser and the recipient need to sign the money order to validate the transaction. It’s crucial to retain the receipt provided with the money order, as it contains vital information, including a tracking number, which can be used for replacement purposes if necessary.

Why Use a Money Order?

1. Security and Assurance: Money Orders are prepaid, meaning the sender pays for the order upfront. This prepaid nature, along with the guarantee provided by the issuing institution, ensures that the funds are secure and readily available to the recipient. Consequently, money orders are less vulnerable to theft or fraud compared to sending cash through the mail.

2. Accessibility for the Unbanked: For individuals without access to a bank account, money orders offer a convenient payment solution. Since they can be purchased with cash and cashed without requiring a bank account, they provide a way for unbanked individuals to send and receive payments safely and reliably.

3. Fund Guarantee: Unlike personal checks, which can bounce if the payer’s account lacks sufficient funds, money orders come with guaranteed funds. It means that the recipient can cash the money order without worrying about insufficient funds or bounced checks, providing a more dependable payment option.

4. Traceability and Accountability: Money Orders can be tracked and traced throughout the payment process, offering a level of accountability for both the sender and the recipient. This trackability ensures that payments are delivered securely and allows for easy verification of payment status if needed.

5. Wide Acceptance: Money Orders are widely accepted by firms and individuals alike, making them a versatile payment method. They are particularly useful in situations where personal checks may not be accepted, offering a reliable alternative for various transactions, including rent payments, bill settlements, and purchases.

How Much do Money Orders Cost?

The cost of a money order tends to increase with the amount of the order. However, it’s pivotal to verify the exact fees associated with your transaction by contacting the specific provider or institution where you intend to purchase the money. It ensures that you have a clear understanding of the costs based on your specific needs and requirements. By comparing costs across different sources, you can make an informed decision and choose the most cost-effective option for purchasing your money.

Let’s explore the costs associated with money orders from different sources:

• United States Postal Service (USPS): For money orders ranging from $0.01 to $500, the cost is $2.10. Money Orders between $500.01 and $1,000 incur a fee of $3.00.
• Walmart: Walmart typically charges no more than $1 for a money order.
• Wells Fargo: Wells Fargo charges a flat fee of $5 to purchase a money order, regardless of the amount, with potential fee waivers for certain accounts.
• Western Union: The fee for money orders at Western Union can vary depending on the specific location where you make the purchase.
• Retail Banks: Money orders from retail banks may cost as much as $5, depending on the institution.

Difference between Money Orders and Cashier’s Checks

Basis	Money Order	Cashier’s Check
Issued By	Money Orders are available at a variety of locations, including post offices, retailers, grocery stores, and convenience stores, offering accessibility to a wider range of individuals.	Cashier’s Checks are issued by banks and credit unions, providing a secure payment method.
Cost	Money Orders generally have a lower cost, ranging from $0.35 to $5, making them an economical option for many transactions.	The cost of obtaining a cashier’s check varies but typically falls within the range of $5 to $10.
Maximum Amount	Money Orders are typically capped at around $1,000, limiting the amount that can be sent or received using this method.	Cashier’s Checks often have no specific cap, allowing for larger transactions if necessary.
Security	While money orders are prepaid and cannot bounce, they lack the same level of security as cashier’s checks since they are not guaranteed by a bank.	Cashier’s Checks offer security through bank-guaranteed funds, ensuring payment reliability.
Availability	Money Orders can be purchased at various locations, such as post offices, stores, and check-cashing companies, and they do not necessitate a bank account, providing greater accessibility.	Cashier’s Checks are only available at banks and credit unions, usually requiring the purchaser to have an account with the institution.

Alternatives to Money Orders

1. Cashier’s Checks: Cashier’s Checks, like money orders, are issued by banks and credit unions. They are commonly used for significant purchases such as buying a car or real estate. Due to their direct issuance by financial institutions, they’re often seen as more secure than money orders.

2. Wire Transfers: Wire Transfers enable the swift electronic movement of funds between bank accounts. They are particularly advantageous for transferring large sums quickly and securely. Wire transfers may offer greater convenience compared to money orders, especially for sizable transactions.

3. Peer-to-Peer (P2P) Payment Apps: Platforms like Zelle, Venmo, and CashApp facilitate effortless digital payments among individuals. These services are highly convenient, particularly for smaller transactions, and often come with minimal or no transaction fees. P2P Payments offer a more modern and user-friendly alternative to money orders.

4. ACH Payments: Automated Clearing House (ACH) payments streamline electronic fund transfers between bank accounts. They’re commonly utilized for recurring bills and direct deposits. ACH payments offer efficiency, especially for routine transactions, making them a viable substitute for money orders in certain scenarios.

5. Credit/Debit Card Payments: Using credit or debit cards for payments provides a convenient alternative to money orders. It eliminates the need to purchase a separate payment instrument and the associated fees. This method offers simplicity and immediacy, particularly for everyday transactions.

How to Fill Out a Money Order?

1. Purchase a Money Order: To buy a money order, visit a convenient location that offers money order services, such as banks, post offices, or retail stores. Request a money order for the desired amount.

2. Recipient’s Information: On the money order form, fill in the Pay to the Order of Line with the name of the person or business you’re paying. Ensure the name matches their identification, especially if it’s required for cashing the money order.

3. Your Information: In the designated fields labeled From, Purchaser, Sender, or Remitter, provide your full name and address. This information identifies you as the purchaser of the money order.

4. Memo Line: If necessary, include additional information in the memo line of the money order. This could be your account number or a brief note indicating the purpose of the payment. The memo line shall be optional, however it shall be useful for record-keeping.

5. Sign the Money Order: Affix your signature on the front of the money order in the space provided. However, do not sign the back, as this area is reserved for the recipient’s endorsement upon cashing.

6. Keep the Receipt: After purchasing the money order, retain the receipt provided by the issuer. The receipt contains a tracking number and serves as proof of purchase. Hold onto it in case you need to replace the money order in the event it is lost or stolen.

Money Orders – FAQs

Is it safe to use money orders?

Money Orders are generally considered a secure payment method, as only the payee can cash or deposit them for the specified amount. By keeping the receipt, you can track your payment and recover funds if the money order is lost, stolen, or damaged.

Can money orders be refunded?

The United States Postal Service offers replacements for damaged, defective, or spoiled money orders at no charge. To qualify, customers must return the negotiable portion of the money order along with the matching customer receipt. Additionally, there are no stop payments on postal money orders.

How can I verify a money order?

To verify the authenticity of a money order, especially if it appears suspicious, individuals can contact the U.S. Postal Service Money Order Verification System using the number 866-459-7822.

Can I cancel a money order?

If a money order hasn’t been cashed yet, it can typically be canceled. To initiate the cancellation process, individuals should verify the status of the money order by contacting the issuer’s customer service number or utilizing the tracking feature on its website.