Note: This article is part of our Basic Banking series, designed to provide new savers with the key skills to save smarter.
Say you need to pay your utility bill, but the company doesn’t accept personal checks — and sending an envelope full of cash isn’t a safe option. Money orders are an alternative and secure form of payment to consider.
How money orders work
Money orders are like prepaid checks. You provide the funds upfront and fill out an order that, like a personal check, is endorsed to a specific recipient.
You don’t need a bank account to purchase a money order, which makes it a useful bill-pay method for those who don’t have checking accounts. It’s also more secure than both cash and personal checks. You can safely send one in the mail, it doesn’t contain any account information and, because it is prepaid, it won’t bounce when deposited or cashed.
You can purchase money orders from most financial institutions, but they’re also available at many convenience stores, supermarkets, money transfer and check-cashing companies, as well as the U.S. Postal Service. One option is to search for local branches of Western Union or MoneyGram, which are often found inside stores such as Walmart, CVS and 7-Eleven.
Money orders are generally sold in amounts up to $1,000, although the Postal Service limits international money orders to $700 (or $500 if purchased for El Salvador or Guyana). There is no minimum, but you’ll have to pay a fee for each order.
These fees vary depending on where you buy. For example, the Postal Services charges $1.20 for money orders up to $500, $1.65 for those between $500.01 and $1,000, and $8.55 for all international transactions. Wells Fargo charges a flat fee of $5. You may find less expensive or even fee-free money order options. Amscot, a Florida-based financial services company, offers money order purchases at no charge.
Keep in mind that these fees are for single money orders. If your transaction is larger than the maximum allowed, you may have to purchase multiple orders and pay a fee for each, which can add up quickly. If you use money orders often, save money by shopping around for the lowest fees.
Pros and cons of money orders
Money orders are straightforward, secure and accessible to anyone with cash, but they do come with fees and a low limit. Before you choose a money order as a method of payment, consider the pros and cons.
|Trackable and safer than cash||Low maximum amounts (often around $1,000)|
|Don’t need a bank account||Fees|
|Can be used internationally||Can be counterfeited or altered|
|Funds are guaranteed||Must be purchased in person|
How to get a money order
Money orders are available at banks, credit unions, post offices, check-cashing shops and local retail stores such as supermarkets, convenience stores and pharmacies. To find Western Union and MoneyGram locations in your area, type your ZIP code into their locator tools and filter for sites that sell money orders.
While it may be convenient to pick up a money order from your bank or a store you’re already visiting, keep in mind that fees vary widely, and it may cost less to purchase at another location. In most cases, you must buy money orders in person.
You can purchase money orders using cash, check, debit or credit, though not all issuers accept the latter, and some may process credit transactions as cash advances, which come with higher fees.
Besides a method of payment, you’ll need to provide the recipient’s name and, depending on the form, your name and address. If you’re using the money order to pay a bill, such as your utilities, you may also need an account number so that the recipient knows how to apply the money you send.
Money orders look similar to personal checks. To fill one out:
- Write the recipient’s (payee) name — either an individual or business — on the “pay to the order of” line.
- Fill out your information in the purchaser section, usually referred to as “from,” “sender,” “remitter” or “purchaser.” Some money orders require your name and address, while others may have space only for your name.
- Sign on the signature line.
- Use a black gel pen — ink is more difficult to erase — write legibly and ensure all information is entered correctly and the amount is what you paid for. You cannot make changes once the money order has been processed.
- Complete the money order immediately, and don’t leave any fields blank. This leaves less room for fraudsters to alter your order.
Money orders are sometimes used in scams. While they’re more secure than cash, they can still be stolen or altered. Drop completed money orders in a secure post office box or hand-deliver to the recipient. Don’t leave them in your personal mailbox.
Once you’ve sent a money order, keep your receipt until you’ve confirmed that the payee has received the payment. This receipt allows you to track the status of your order, including the date of deposit. If your money order is lost or stolen, you can use the receipt to submit a claim to the issuer and receive a replacement.
For Postal Service-issued money orders, you’ll have to fill out a claims form in person and pay a $5.95 processing fee. Western Union allows you to mail, fax or email forms. It charges $15 if you have a receipt and $30 if you do not. Without a receipt, you may not receive a refund.
How to cash a money order
You can generally cash money orders in the same places you can purchase them: banks, credit unions and stores that offer check-cashing and other financial services. Some traditional financial institutions may allow you to put money orders through mobile or electronic deposit, while others will not.
When you’re ready to cash or deposit a money order, endorse the back just like you do a check. When cashing in person, you’ll need a valid form of identification, such as a driver’s license or passport. Depending on where you cash your money order, you may pay a small check-cashing fee.
Alternatives to money orders
Money orders are a fairly straightforward method of paying bills or sending money, but they’re not right for every situation. Before you settle on a money order, consider these alternatives.
Like money orders, funds sent via cashier’s check are guaranteed by the issuing financial institution. They’re often preferred, or even required, for business transactions in which cash and personal checks aren’t accepted. They differ from money orders in their higher maximums and higher fees (around $10), but they may still cost less depending on the size of your transaction.
With a wire transfer, you can send a lot more money a lot more quickly than with a money order. Wire transfers can be in large amounts and often go through almost instantly because they are completed electronically. The fees are higher than both money orders and cashier’s checks — expect fees around $30 for domestic and $40 for international transfers, as well as additional charges on the recipient’s end. Wire transfers are useful for large transactions, but the fees could be prohibitive for smaller amounts.
Personal checks are easy to use, can be filled out at home and carry no processing fees. But they require the payer to have a bank account and they’re not guaranteed, which means they can bounce if the sender has insufficient funds in that account. For this reason, some businesses may not accept them.
If you have cash flow concerns as the payer, keep in mind that you have to keep your balance high enough until the check is deposited. Personal checks are also less secure than other payment forms because bank account numbers are printed on them.
If you don’t have a bank account, a prepaid card is another way to send money. These prepaid cards are like gift cards: You can buy them at retail stores and use them anywhere debit cards are accepted. The downside of these cards is potential fees to purchase and load them. They’re also not endorsed to a specific person, so if they’re lost or stolen, anyone can spend them.
Online bill pay
Online payment platforms such as Zelle or PayPal are thought to be more secure than sending money via paper check. These services require you to have a bank account to send and receive funds. There may be daily transaction limits, but generally the fees are low or zero.
The bottom line
A money order may be a good — and secure — alternative to cash or personal check if you have bills to pay or are sending sums less than $1,000 to family, friends or businesses. Be sure to look for the lowest fees, especially if you plan to buy multiple orders.