What's a Money Order?
What's a Money Order?
Money orders can be bought at post offices, supermarkets and money transfer outlets. You can send money orders to people that do not have bank accounts and they can easily convert it to cash.
Here is more on how money orders work:
How Do Money Orders Work?
To buy a money order, visit a bank, a credit union, a Western Union/MoneyGram outlet or a Walmart. If you need a money order worth, say, $200, you have to present the amount in cash (or cash alternatives like debit/credit cards). If you’re buying from your bank, you can transfer the funds from your account.
You’ll be charged a small amount for the money order (typically around $1 but banks charge more).
Afterward, you provide the name of the recipient, your address and your signature. You may either collect the money order and give it out in person, or mail it to the recipient. Whichever option you choose, you’ll be given a receipt that allows you to track the order and ascertain if the recipient has received/cashed it.
Recipients can either convert a money order into cash or an account deposit, and they don’t always have to make the conversion at the same institution that issued it. For example, if you receive a USPS money order, you can cash it at your credit union. However, it may be cheaper and more convenient to convert at an issuer branch.
Because they are prepaid, money orders are considered safer than personal checks. It’s also smarter to mail money orders (instead of cash) since the recipient’s name is on the certificate and nobody else can cash it.
When to Use Money Orders?
In the following situations, it’s better to send/receive funds via money orders than any other payment method:
Money orders are ideal for sending funds to people that don’t have bank accounts. To receive cash, all the recipient has to do is present the money order and a valid ID.
Many businesses only accept personal checks to avoid card transactions fees. However, if they cater to a lot of new customers, money orders may be a better option. That way, they can receive payments from strangers without fear that the payment would be rejected due to insufficient funds.
If you want to send money abroad, a money order is a cheap option. While most money orders don’t work outside the United States, the USPS facilitates money order payments to nearly 30 countries.
As mentioned above, it’s smarter to mail money orders than cash. Also, if your child is traveling to another state for say, a school trip, it’s safer to give them money orders rather than cash.
Advantages of Money Orders
These are some benefits to making and receiving payments via money orders:
Money orders are perhaps the most secure way to send money. More secure than cash, personal checks and maybe even card payments.
With money orders, the payer and the payee don’t need banks or bank accounts. People without bank accounts can also use money orders to pay monthly bills.
Money orders can be sent across international borders and the receiver can convert the order to cash in their local currency. Furthermore, the sender can track the order and see where exactly it’s, and if the payee has cashed it.
Money orders are easy to access. No matter how small a town is, it’ll have a post office, a supermarket, or a money transfer outlet (like MoneyGram or Western Union). This makes it possible for nearly anybody to buy, send and cash a money order.
Personal checks carry the sender’s name, account number, and routing number. In the past, these details have been used to counterfeit checks and compromise people’s bank accounts. However, money orders don’t display any personal information.
As with all payment methods, there are some snags when you send and receive funds with money orders. They are highlighted below:
Money orders have maximum amounts and most of them are capped at $1,000 per order. If you need to send a money order of, say, $2,500, you’ll need to buy multiple orders and pay fees on all of them.
It’ll cost a small fee to cash a money order (sometimes 1 to 3% of the order amount). The sender may need to factor this in when estimating how much to send. However, if you take the money order to your bank, the funds can be deposited into your account for free.
If you try to cash a money order at a financial institution other than the issuer, it may take some days to get the full amount.
When money orders are mailed, they are subject to the risks that come with sending anything through the post. They may take weeks to reach their destination, be misplaced or lost completely. However, the chances of any of these happening are quite slim. As postal services optimize their operations, many of the risks are removed.
As long as the sender has the receipt, a money order can be canceled or reclaimed (in case the payee does not receive it). However, it may cost up to $20 to cancel an order. Some issuers allow senders to cancel without receipts, but at a higher fee (Western Union charges $30).
In conclusion, money orders are very good as cash alternatives. They protect senders by keeping their banking information private, and recipients don’t need to worry about rejected payments.
If a money order is lost/stolen, as long as they still have the receipt, senders can get most of their money back. And for the 14 million American adults that do not have a bank account, money orders provide a way to send and receive funds, as well as pay bills.