What is a money order?

Quick insights

• A money order is a form of payment that does not require either party to have a bank account.
• They are generally available at post offices and banks, as well as some supermarkets and convenience stores.
• Money orders cost a nominal fee.

There are many ways to send money, but most require you to have a bank account. Money orders, however, do not. This form of payment can be a way to send money to another person or business.

A money order is a prepaid payment method that allows the payer to provide funds to the payee. These orders are similar to writing a personal check, but unlike a check, a money order doesn't require the payor to have a bank account.

Money orders also may offer more reliability than writing a standard check. While a personal check has the potential to bounce, a money order cannot. However, unlike personal checks, money orders usually have a maximum limit, often around $1,000 in the U.S. Let’s dive into money orders, including how to use them and when you may need to send one.

How money orders work

Money orders are often considered a guaranteed form of payment because of how they are generated. The person sending the money order has to provide the funds when it’s issued. Cash or debit cards are commonly accepted forms of payment for a money order. Some retailers and financial institutions may not allow you to purchase a money order with a credit card.

When you purchase a money order, you will receive a receipt and a unique serial number from the issuer. This is your proof of payment and can be used for tracking as well. Money orders can be mailed or delivered in person, depending on the payee's preference.

Money orders can only be cashed by the payee on the order. The person cashing a money order will need to produce a government ID that matches the name on the order.

If you’re on the receiving end of a money order, it can be deposited into your bank account or cashed in it at various locations. The institution cashing the money order typically verifies its legitimacy and your identification before releasing funds. Money orders are subject to the same funds availability requirements as checks.

Pros and cons of money orders

Using a money order may offer certain advantages, such as protection, the assurance of funds and accessibility for those without bank accounts. However, you may find the following disadvantages as well, including:

• Fees
• Potential for loss or theft
• Inconvenience

Due to available modern peer-to-peer payment solutions, you may find getting and sending a money order can be somewhat cumbersome. This may be especially true in comparison to a few clicks on a mobile app.

However, there are some situations that require a reliable and assured form of payment. In those instances, a money order may be a good option.

Costs associated with money orders

Money orders usually come with a fee. They are commonly sold at post offices, banks, credit unions and some retail stores, like convenience stores or supermarkets.

The fee varies by location, but you can typically get money orders for a few dollars each. The cost of the money order may also be tied to the amount of the order—with higher amounts resulting in higher fees.

If you’re cashing a money order, you may be charged a fee depending on where you cash it. Typically, if you’re a customer of a bank, your bank will not charge you to cash the money order. Similarly, if the money order was issued through the United States Post Office, the post office will not charge you to cash it.

If a money order is lost or stolen, there may be a processing fee to replace it.

How to send a money order

To fill out a money order, you’ll need the following:

• The payee’s name
• The payee’s address
• Your address
• Your signature on the front of a money order

A money order typically requires a signature to be valid. Since many issuers generally don’t refund filled-out money orders, it might be a good idea to verify the details before completing it.

Once you fill out and mail your money order, you may want to hold onto the receipt for tracking purposes.

Alternatives to money orders

Money orders can be a way to transfer payments often around $1,000, but there are a few other options you may find convenient:

• Personal checks: Checks are another form of payment, but they require the payee to have a bank account. Plus, if you write a check, you have no control over when those funds are withdrawn from your account.
• Bank transfers: Bank transfers directly move money from one account to another, but both parties need a bank account.
• Digital payment apps: Payment apps are often convenient and quick, but they require a smartphone and may charge fees. They also may not allow for the retrieval of funds if they are accidentally sent to the wrong person or party.

In summary

Money orders can be a payment option for those with and without bank accounts. They allow the sender to provide assured funds of up to $1,000 to another person. A money order can also be tracked by a unique serial number. Keep in mind that while money orders do not expire, they also do not accrue interest.