How Do Money Orders Work?

Most likely, you use a combination cash, credit cards or personal checks for your daily expenses. Money orders are useful for a variety of reasons, including sending money overseas or making a payment.

Money orders are not used by most people, so you might need to refresh your memory on how they work. Learn more about how to use money orders as a form of payment.

Money Order vs Cashier's check

There are differences between the two.

Ellen ChangApril 2, 2021

What is a money order?

Money orders are prepaid and guaranteed forms of payment backed by financial institutions. Money orders have a maximum amount that varies from issuer to issuer but is typically around $1,000.

You pay the face amount of a money order plus any fees. The institution will then print the recipient's name and the amount on the money order. Signing the money order serves as verification.

The money order can be used for a number of purposes once it has been issued. It can be used as a means to send money or make a payment. The recipient may then deposit the money into his account or cash in at a place that accepts them.

Jack Prenter is the CEO of DollarWise. He says that a money order works like a pre-paid check. Money orders are often considered to be safer than cash, says Prenter. It's also more convenient than a cashier's check because it does not require a checking account.

How to buy a money order

Money orders can be purchased at financial institutions such as a credit union or bank. Western Union and the United States Post Office also sell money orders.

How to fill out a money order

You'll have to take certain steps when purchasing a money-order:

Buy the money order. Write the recipient's name on the line "Pay to Order Of". Write your name and address on the "From" line or "Sender". Add a Memo: Some money orders include a space to write a reference or memo. In this space, you can include additional information such as a account number or an invoice number. Remove the receipt. Tear the receipt off along the perforated edges and store it safely. The receipt will be used as proof of the purchase, and could be required if any problems arise. Send the money order or deliver it personally: You can either send the money orders by mail or deliver them in person. Keep any tracking information or delivery confirmation until you are sure that the money order has been cashed.

When is it a good idea to use a money order?

Prenter advises that a money-order is the best way to pay when you want to send money safely, particularly if there is no bank account involved. Money orders are useful when you need to send money via the mail or internationally, or if the business doesn't accept credit cards, personal checks or other payment methods.

Prenter suggests that money orders are a safe and traceable method of sending cash. It's an option that's useful when a bank transfer isn't possible.

Money Order Fees and Costs

Money orders come with fees. You'll have to pay a fee for obtaining a cashier's check. The amount and financial institution will determine the fee.

Walmart is one example. You'll only pay $1 as a fee.

You can pay $1.75 for a money order up to $500 or $2.40 for a money order from $500.01 to $1,000 if you use the U.S. You'll only pay $1.75 per money order for orders up to $500 or $2.40 per money order from $500.01 to 1,000. Postal money orders for military purposes cost only 60 cents. International money orders up to $700 are charged an issue fee of $49.65, and a processing charge based on destination country.

Money orders are usually charged at $5 by banks and credit unions. Some banks may give money orders away for free to customers who use their checking account. Some institutions charge extra fees to cancel or replace a money order that has been lost or stolen. Some institutions may offer discounts to members of specific groups such as senior citizens or military personnel.

Keep in mind, too, that the amount of money orders is capped. If, for instance, your bank only issues money orders of up to $1,000 but you have to pay $2,000 you will need to purchase two money orders, and pay two fees.

You can also buy money orders with your credit card. However, this will be treated as a "cash advance" and you may have to pay an additional fee or a higher APR.

Money Moves That You'll Be Thankful for

View All 17 Slides

This article was published earlier and updated with the latest information.