People who need to send cleared funds to another party have several alternatives. They can purchase a cashier’s check at a bank or other savings institution. They can  wire the money through their bank or a retail service, such as Western Union. However, the cheapest way to do this is with a money order. These versatile instruments provide protection for both buyers and sellers and are commonly used for many types of remote transactions.

Getting a money orders guarantees recipients that they will receive the money – whereas, with a regular check, they have to worry whether the check is "good" and will clear. Their anonymity also protects the payer because the recipient gets a document that doesn't also include the payer's checking account number or other information.

How They Work

Money orders have three lines of information that need to be filled out. On the signature line the payer signs to authorize payment to the recipient. The payee line specifies the name of the recipient, and the memo line is where any other information pertinent to the payment being made can be recorded, such as “November Rent” or the confirmation number of a purchase.

Every money order also has a receipt that the payer tears off to keep until the order is cashed. If the order is lost or stolen, then the payer can reference the order number on the receipt to track down or cancel the order with the issuer. The receipt serves as proof that the holder is indeed the payer on the order; payers should  keep receipts in a safe place until the order has cleared. The number on the receipt also usually serves as a tracking number that the payer can look up online to see the status of the order. Once the order shows as having been cashed, the payer can discard the receipt.

Who Uses Them

You can purchase a money order with cash or a debit or credit card, but not a check. They are especially useful if you don’t have a bank account. Many people purchase money orders every month to pay their rent and utility bills, or to send money to family or friends.

Christina Castle, the shift supervisor at Armed Forces Bank on post at Fort Leavenworth, Kan., says, “We probably see more non-customers than customers purchase money orders from us in a typical month. People around here often use them for monthly bills, or else to pay for speeding tickets they incurred across the state line in Missouri, as their municipal courts always require payment in the form of cleared funds.”

Advantages

You can buy and cash money orders at many different types of businesses and institutions, including banks, credit unions, gas stations, grocery stores, convenience stores, payday loan institutions, drug stores, the customer service desk at many retailers, such as Walmart, and the U.S. Post Office.

Money orders usually cost very little; you can find them for as little as 50 cents to $1, whereas cashier’s checks usually cost at least $5. But keep an eye on fees. Some are more expensive.

Drawbacks

Paper money orders cannot be purchased online and always require immediate payment in cash or by credit card. Some places may require you to be a customer with an account of some sort in order to cash an order that was not purchased there.

Money orders often have a limit, such as $1,000, on the amount you can put on a single order. Those who need to send larger sums may have to split it among several different orders.

Money orders sent through the mail are often prime targets of thieves and scammers. Buyers who intend to mail their orders are advised to write everything on the order in big, dark capital letters as a way to thwart crooks who would attempt to write over the original information with a marker. Buyers who lose their receipts may have no recourse if their orders are lost or stolen.

Some sellers or recipients may not take money orders because they are commonly used as tools for laundering money. Check with the payee before sending a money order in payment of a bill, to make sure that a money order is acceptable.

The Bottom Line

Money orders provide both bank and non-bank customers with a convenient method of providing cleared funds to another party quickly. Despite their limitations, they typically represent the cheapest form of guaranteed payment and also offer protection from theft and loss. For more information see 8 Low-Cost Ways To Transfer Money.

Even low fees can add up, however. If you buy many money orders each month, investigate getting a low-cost checking account to pay bills that accept checks. See Online Banks: Lower Cost And Little Sacrifice, talk to your local bank or credit union and search online.

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