Yahoo Finance How Do Money Orders Work?
Money orders offer a safe alternative form of payment to a regular check. Think of it this way: Getting a money order is a little like using a check that has already cleared the bank. For example, if somebody gives you a money order worth $100, it's as good as cash once you deposit it at your bank or take it to a financial institution to exchange it for money .
Chances are, you don't use money orders all that often to pay for services or products; instead, you likely use cash, a credit card or personal check as your primary method of payment. But every once in a while, a scenario will come up in which you may need to use a money order, such as needing to send money internationally or deliver a payment without worrying about putting yourself in jeopardy of fraudulent activity.
If you're looking to brush up on what money orders are -- and when it makes sense to use them as a payment method -- read on.
Why do some organizations and individuals prefer to use money orders? Money orders, unlike a personal check, offer a guaranteed form of payment. After all, a check can bounce. And unlike cash, you also can specify the payee -- who the money order goes to -- with a money order. That way, if the money order falls into the wrong hands, generally, it's going to be worthless.
[Read: 5 Unfair Banking Fees and How to Avoid Them.]
Where can I buy money orders? You can pick up a money order at a financial institution, like a bank or credit union. Western Union and United States Post Offices also sell them, in addition to convenience stores, pharmacies, payday loan stores and Walmart.
As for buying a money order, it's pretty straightforward. You can buy a money order with a credit card, but purchasing a money order with a credit card often treats money orders as a cash advance, which means you're going to pay a fee. After you provide cash or a debit card, you'll be given a money order with the payee's name and address on it, along with your name and address.
You can cash a money order at a post office, convenience store or bank branch.
When should I use a money order? Generally, people use money orders to pay for things when they don't feel comfortable paying in cash or with a check -- or when the entity receiving the funds isn't interested in getting paid with cash or a check. Also keep in mind that if you are sending cash through the mail, that could be stolen, or if you're paying somebody or an organization with a check, that can bounce. In fact, many businesses and individuals who receive money via personal check only to see it bounce will then insist on being paid by cash or a money order.
Javier Gutierrez, a 26-year-old Austin, Texas-based personal finance blogger who runs the DreamerMoney.com blog aimed at immigrants, DACA recipients and "Dreamers," says he sometimes sends money orders to his parents and siblings in Coahuila, Mexico. While he could have opted to send his family cash or a check, he felt better about sending money orders. For starters, he didn't want to send money through the mail, or drive the money across the border."With checks, you will more likely get declined by the Mexican bank, unless the bank is the same. Then you're going to have to pay an additional fee to convert the money from dollars to pesos," Gutierrez says. He and his family would have to convert the money, and pay a fee, from dollars to pesos with cash as well, he adds.
Money orders, which are generally $5 or less, are also cheaper than a lot of other forms of transferring money, such as a wire transfer through a bank. According to the website ValuePenguin.com, the average cost of a wire transfer is $13.88 within the United States, and the average cost to send money to another country is $28.13. Money orders are also less expensive than cashier's checks, a check guaranteed by the bank. According to the website MyBankTracker.com, the average cost of a cashier's check is $9.10. Besides, "money orders are convenient -- other than having to get up and go to the actual place [to buy them]," Gutierrez says.
[See: 8 Easy Ways to Organize Your Financial Life.]
Why are some people uncomfortable receiving cash or checks through the mail? In short: Cash can be stolen. And with a personal check, a company may not want to take the risk of receiving it, because your check may not clear. If you send a money order, the recipient doesn't have to worry about that.
Are money orders theft-proof? They are considered safer than cash, but a thief could steal your mail and make off with a money order -- and it's possible he or she could exchange it for cash. Still, it wouldn't be easy for a thief to make money off your money order.
Some con artists will scam people out of money orders, but it's usually by tricking them into sending a legitimate money order. Stay vigilant when anyone you don't know well wants you to send them money, whether with cash, a check or a money order.
Gutierrez says he never worried about his money orders being stolen. "My family would get a code, and they had to present a form of ID and the code number when they picked up the money order," he says.
But if your money order does get lost in the mail or you misplace it and you have the receipt, you should be able to get a full refund. For instance, according to the Western Union website, you will receive a refund, though you will have to pay a $15 nonrefundable processing fee.
Are there fees for money orders? Jenny Chang, a 34-year-old public relations executive at PKPR in New York City, says she recently moved into a condominium with a nearby neighborhood pool. "Each summer, residents have to provide a $25 money order or certified check to get a member ID made to use the pool," she says.
Her bank charged her $5 for the money order -- or $8 for a certified bank check. She opted for the money order to optimize savings. Chang also could have done better than paying $5. Walmart is known for having the cheapest price for a money order -- 70 cents, if the money order is for $1,000 or less. The U.S. Postal Service charges $1.20 if you're paying for a money order of $500 or less; $1.65 if you're paying for a money order between $500 and $1,000.
And if you want a money order for an amount higher than $1,000, keep in mind that most money orders max out at $1,000. In that scenario, you'd either have to get a second money order to compensate for the extra money, or you'd pay for a cashier's check, which is generally only offered at a financial institution, like a bank or credit union.
Are there any better options than money orders? Gutierrez suggests considering utilizing handy apps. This year, he says, he began sending his family money through apps on his phone. "I use Xoom, by Paypal, but there is also Remitly.com," he says.
[See: 10 Things Everyone Should Know About Money.]
There are still fees for both Xoom and Remitly, which can vary depending on the amount of money you're sending and to what country, but the fees are comparable to what money orders cost, Gutierrez says. However, the apps are faster than sending a money order through the mail, and he can complete all banking activity from his phone.
More From US News & World Report
