Money Orders – Everything You Need to Know

Money orders are sort of like a check. Except they’re prepaid and safer.

Instead of a check that can bounce, a money order is guaranteed.

But they have a few drawbacks like fraud.

Here’s everything you need to know about money orders, including how they work, where to get one, and when you might want to use a different form of payment.

What’s a Money Order and How Does It Work?

Money orders look similar to a check, it’s a paper document used to make a payment. Unlike a check, however, a money order is paid in advance.

Let’s say someone gives you a money order, that means you’re the payee since you’re receiving the funds. When you present the money order to your bank, they can rest easy knowing they will receive the amount stated on the order. This is different from a check which can bounce if there are insufficient funds in the account holder’s account.

In short, a money order works in much the same way as a personal check, except the amount listed on the money order must be paid up front.

For example, assume you find a piece of furniture on Craigslist for $1,000 and would like to purchase it. The seller might ask for a money order before handing over the furniture or shipping it to you. They want the extra guarantee that you have the $1,000 before handing over the furniture.

To get a money order for something that you want to purchase, you must pay in advance, address the money order directly to the seller, and pay a service fee to the company that’s doing the money order for you.

Money orders also have an advantage over cash in that they’re addressed to a specific individual or entity. This means that only the intended recipient, the payee, can cash it out.

When to Use a Money Order

Money orders are a useful form of payment in a variety of situations. Here are five instances in which you might prefer using a money order over other types of payment.

1. You Need Extra Security

Money orders offer both you and the payee more protection than cash, especially when you’re sending payment through the mail. If you send cash, there is a risk it could get lost or fall into the wrong hands.

With a money order, however, the payee is specifically addressed on the order. In the event the money order gets lost in the mail or the payee never receives it for some reason, you can easily cancel it and replace it without losing any money.

2. You Don’t Have a Bank Account

You can obtain a money order from a variety of places, and you don’t need a bank account to do it. This is a contrast to personal checks, which require you to have a checking account before you write out a check.

3. You Want to Protect Your Privacy

Money orders are also a good option if you want to keep your personal information private. When you give someone a personal check, it lists your account number, address, and maybe even your phone number. If you own the account with a spouse or other joint account holder, that person’s name will also appear on the check.

This type of information doesn’t appear on a money order, which makes a money order ideal when you need to make a payment to someone you don’t know.

4. The Seller Asks for It

In some cases, a person selling an item might require payment via money order. This is especially true if you’re buying something online or purchasing a high-value item. Sellers want to protect themselves from the risk of a bounced check. With a money order, they don’t have to worry about getting a notice of insufficient funds.

5. You Need to Send Money Abroad

A money order can be a good way to make a payment to someone in a foreign country. You can purchase international money orders from the United States Postal Service, which provides regular updates about which countries accept international money orders.

Where and How to Get a Money Order

You can find money orders in a variety of places, including banks, the post office, convenience stores, check cashing businesses, and grocery stores. You can even find money orders at big box stores like Walmart.

In most cases, the fee for purchasing a money order is quite reasonable, with some locations offering money orders for less than a dollar. Generally, you can expect to pay less at places like Walmart and convenience stores than you will at a bank or credit union.

When you’re ready to buy, it’s important to remember a few key points:

  • Have the funds ready – A money order requires an advance payment, so you’ll need to have the full amount of funds on hand.
  • Don’t leave the payee area blank – Similar to a check, the money order will contain a line that states “pay to the order of” followed by a blank where you can fill in the name of your intended payee. You should fill in this information right away to protect yourself in the event the money order gets lost. With the payee’s name on the money order, no one but the payee can cash it.
  • Retain your receipt – Hang on to your receipt and other documents related to your money order. These documents can be important down the road if you need to cancel or reissue the money order for any reason. Additionally, the receipt will include a tracking number you can use to make sure the money gets to your intended recipient. Some financial institutions let you track your money order online, while others provide tracking via phone.

Once you have the money order, you’re ready to deliver it to the payee.

Considerations Before Using a Money Order

Before you use a money order, it’s important to be aware of a few drawbacks. Here are four issues to watch out for:

1. Potential for Fraud

Unfortunately, money orders are sometimes used by scammers to defraud innocent people out of money. In 2017, about 500,000 people in the U.S. fell victim to fraudulent checks, including money orders.

Financial experts warn consumers to be wary of possible red flags when it comes to money orders. For example, one common scam involves a fake buyer contacting sellers over the internet and using a money order to pay for an item.

When the seller receives it, however, the money order is for an amount beyond the item’s sale price. In this type of scam, the buyer claims they made a mistake and asks the seller to send back the difference.

When the seller goes to cash the money order, they discover it’s fraudulent. This leaves the seller on the hook for both the sale price and any money they forwarded to the scammer.

2. Money Limits

Most money orders have a $1,000 limit, and some limits may be even lower depending on the financial institution issuing the money order.

This means you must purchase several money orders if you need to pay for something that exceeds this amount. By the time you factor in the inconvenience and fees, it’s usually easier to use a cashier’s check or another type of payment.

3. Can Be Time Consuming

Other forms of payment, such as a PayPal transfer, are much faster and more convenient than a money order.

If you have the ability to use an electronic transfer site like PayPal or Venmo, you can send money directly to another person without the hassle of driving to a store that sells money orders, waiting in line, and mailing the money order. Most electronic transfer sites and apps also offer fraud protection and the ability to dispute a transaction if something goes awry.

4. Not as Convenient as Other Forms of Payment

Not everyone accepts money orders, and some people aren’t willing to take them because they worry about the possibility of fraud. You may find that certain banks and other financial entities refuse money orders.

Many banks also prohibit customers from using mobile deposit apps to deposit money orders into their account. Again, this is likely due to the risk of fraud and the prevalence of online scams that use money orders.

Money Orders – Everything You Need to Know is a post from: I Will Teach You To Be Rich.