What is a 'Money Order'

A money order is a certificate, usually issued by governments and banking institutions, that allows the stated payee to receive cash on-demand. A money order functions much like a check, in that the person who purchased the money order may stop payment.

Money orders are readily accepted and converted to cash, and are often used by people without access to a standard checking account. Money orders are an acceptable form of payment for small debts, both personal and business, and can be purchased for a small service fee from most institutions. Money orders were first issued by American Express in 1882, and later became popularized as traveler's checks.

BREAKING DOWN 'Money Order'

Advantages and Disadvantages of Money Orders

Since money orders are sold at post offices and many grocery stores and gas stations, they are easy to acquire by anyone who has cash in hand. They can be used for paying most bills and for many purchases. For sellers who are reluctant to accept checks, money orders offer a reasonably safe alternative. Since the purchaser immediately pays cash for the money order, there is no risk that it might bounce. Although there is a small possibility that the money order might not be genuine, this is relatively uncommon.

In some situations, paying with a money order can be safer than paying with a personal check. Since personal checks include the account holder's routing number and bank account number printed on the bottom, this private information can be stolen and used to create fraudulent checks. In contrast, money orders do not include personal information about the purchaser.

On the downside, money orders can be more difficult to track than a personal check. When a check writer wants to determine whether a personal check has cleared, he only needs to visit his bank or look at his online account for information about its status. To track a money order, the issuer must fill out tracking forms and pay an additional fee to learn whether the money order was cashed. The entire process of researching the status of a money order can take weeks. The United States Postal Service, however, offers an online money order inquiry service that allows buyers to input the money order number and get an update on its status.

When a purchaser pays for a money order, it comes with a receipt that includes the serial number of the money order. The purchaser should always keep this information until he is certain the money order has cleared. Without a receipt, tracing a money order can be difficult or even impossible.

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