Money Order

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.

RELATED TERMS
  1. Bracketed Buy Order

    A buy order that is accompanied by a sell limit order above the ...
  2. Limit Order

    An order placed with a brokerage to buy or sell a set number ...
  3. Order

    An investor's instructions to a broker or brokerage firm to purchase ...
  4. Bracketed Sell Order

    A sell order on a short sale that is accompanied (or "bracketed") ...
  5. Above The Market

    An order to buy or sell at a price set higher than the current ...
  6. Day Order

    An order to buy or sell a security that automatically expires ...
Related Articles
  1. Brokers

    Explaining Market Orders

    A market order is the most common order used to purchase a financial security.
  2. Trading Strategies

    Introduction To Order Types: Market Orders

    Note: Use a market order to guarantee a fill. A market order is the fastest and most reliable way to get in out of a trade. A market order is appropriate if getting filled is more important than ...
  3. Investing

    How To Start Trading: Order Types

    The types of orders you use can have a large effect on your trading performance, so understanding the different order types is important to your success.
  4. Online Stock Traders

    Online stock traders place buy/sell orders for financial securities and/or currencies with the use of a brokerage's Internet-based proprietary trading platforms. The use of online trading ...
  5. Active Trading Fundamentals

    The Basics Of Trading A Stock

    Taking control of your portfolio means knowing what orders to use when buying or selling stocks.
  6. Investing Basics

    Narrow Your Range With Stop-Limit Orders

    With stop-limit orders, buyers protect themselves from prices too high for their tastes.
  7. Active Trading Fundamentals

    Which Order To Use? Stop-Loss Or Stop-Limit Orders

    Stop-loss and stop-limit orders can provide different types of protection for investors seeking to lock in profits or limit losses. Investors need to know how each type of order works to know ...
  8. Forex Education

    How To Place Orders With A Forex Broker

    Learn how to set each type of stop and limit when trading currencies.
  9. Trading Strategies

    Making The Trade: Understand Order Types

    Buying and selling stock can be a lot like buying or selling a car. Traders should use and understand tools such as market orders, limit orders, day orders, and good-'til-canceled orders to ensure ...
  10. Retirement

    The Pros And Cons Of Money Market Funds

    Find out whether stocking your money in these accounts will stand up to the test of time.
RELATED FAQS
  1. What's the difference between a market order and a limit order?

    Buy and sell trades with market orders at the present stock price and execute limit orders if the stock price falls within ... Read Answer >>
  2. Why do limit orders cost more than market orders?

    Learn the difference between a market order and a limit order, and why a trader placing a limit order pays higher fees than ... Read Answer >>
  3. How do I place an order to buy or sell shares?

    Read a brief overview of how to open a brokerage account, how to buy and sell stock, and the different kinds of trade orders ... Read Answer >>
  4. What is the difference between a stop and a market order?

    Learn about market orders and stop orders, how they are used and executed, and the main difference between stop orders and ... Read Answer >>
  5. What's the difference between a stop and a limit order?

    Different types of orders allow you to be more specific about how you'd like your broker to fulfill your trades. When you ... Read Answer >>
  6. How do I set a strike price in foreign exchange trading?

    Learn about the different order types foreign exchange traders can use to manage positions at certain strike prices and how ... Read Answer >>
Hot Definitions
  1. Physical Capital

    Physical capital is one of the three main factors of production in economic theory. It consists of manmade goods that assist ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
Trading Center