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Money orders don’t have an expiration date, but as the years pass, service charges may be deducted from the amount they are written for, lessening their value. That’s an important fact to know about this form of payment, which is likely to be an affordable, secure, and convenient option for many people.

Keep reading for more insight on how a money order may not expire but can decrease in value over time.

Do Money Orders Expire?

Money orders don’t generally expire, which can be a benefit when using them as a secure form of payment.

Here’s a closer look, however, at this aspect of this payment form. The way a money order works is the individual who needs to make a payment purchases the money order and pays for it upfront. Because of this, the payment can’t bounce like a check could.

Technically, money orders do not expire. However, they can lose some of their value if someone fails to cash or deposit a money order. Usually, if a money order goes uncashed for one to three years after purchase, then a non-refundable service charge will be deducted from the principal amount (though not in the case of USPS domestic money orders). The exact amount of this charge varies and depends on the unique terms and conditions of the money order. This service fee could then potentially be charged on a monthly basis, which could eventually deplete the value of the money order.

This makes a money order quite different from personal checks drawn on your checking account or a cashier’s check. These are typically void (or uncashable) after 180 days but don’t depreciate in this way.

Do Money Orders Lose Their Value?

Yes, money orders can lose their value after a certain period of time when service charges begin to kick in because the recipient didn’t cash or deposit the money order. (This can be done at a variety of locations like banks, credit unions, grocery stores, select retailers, or the U.S. Postal Office.)

While technically there is no set money order expiration date, in some states they can fall under abandoned property regulations after a certain period of time or can lose value due to those aforementioned fees.

What Happens if a Money Order Goes Unused?

So, how long is a money order good for and what happens if it goes unused? How long a money order is good for depends entirely on state laws and the rules set by the issuer. If a money order continues to go unused, service fees can apply that diminish or, in some instances, completely deplete the value of the money order, or the money order can be considered abandoned property. In the latter case, it’s up to the payee to identify this issue and attempt to reclaim the funds.

Tips for Keeping Yourself Safe With Money Orders

Money orders are considered to be a secure way to make payments. However, there are scam artists who commit money order fraud by forging money orders. This can cause major issues for the recipient of the money order. If someone receives a falsified money order and deposits it, the bank or credit union they used to deposit the fake money order will eventually discover the fraud. This can take the depositing institution a week or so to do, but when they do learn the truth, they remove the funds from the depositor’s account, potentially causing overdraft or non-sufficient funds issues.

On the other hand, paying with a money order can put someone at risk of fraud if the person they’re paying isn’t sincerely offering the services or goods they’re requesting payment for. Once they cash the money order, they may disappear without making good on their end of the transaction.

These are some tips that can make it easier to avoid money order scams:

•   Don’t send money to a stranger. The FTC advises that consumers never send a money order to a stranger. If someone asks for the payment to be kept secret or claims they can only accept a money order, this can be a red flag.

•   Verify funds before cashing. If someone is receiving a money order, they can contact the issuer listed on the back of the money order so they can confirm the money order is genuine before they cash it.

•   Evaluate signs of forgery or tampering. Take the money order to the branch location of an issuer and ask them to inspect it, as you might with verifying a check. They can point out any signs of forgery they detect. (The recipient can also examine the money order to see if it appears to have been tampered with. For example, if the amount looks like someone erased or added to it, that can be a sign of a scam.)

•   Wait to use the funds. After depositing a money order, hold off a week or two before spending the money. You might track a money order to make sure that it clears. That way, if the money order was fake and the bank takes the funds back, they’ll be available.

•   Say no to pressure tactics. If someone is trying to rush you to quickly send a money order, cash it, or issue a refund, this can be a sign of fraud. The same goes for sob stories or threats with the aim of encouraging faster movement.

The Takeaway

Money orders typically don’t have a set expiration date, but after a certain period of time, if the recipient fails to deposit or cash the money order, service fees can be deducted from it. Eventually, these service fees can chip away at the value of the money order, even until it becomes worthless in some cases. This is why if you receive a money order, it’s best to cash it right away to retain its full value.

FAQ

Can you cancel a money order?

The payer can request to cancel the money order before the recipient has cashed it; they typically must have the receipt from the purchase in order to do this. It is also possible to replace a stolen or lost money order after the loss or theft has been confirmed (which can take up to 60 days to confirm). Having a money order replaced or refunded can result in an additional fee.

Can you replace a money order?

Yes, it is possible to replace a money order but only if the loss or theft of the money order has been confirmed. The confirmation process can take up to 60 days to confirm. If someone wants to replace a money order, they usually have to pay a processing fee.

Why do money orders never expire?

Money orders don’t expire because they have already been paid for when the money order is issued. For this reason, you can think of the funds as being guaranteed. However, if someone fails to cash a money order for between one and three years, service fees can apply and subtract from the value of the money order.

About the author

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.

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SOBK1222020

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Moneyness in options refers to the relationship between an option’s strike price and the current price of the underlying asset.

Options are either in-the-money (ITM), out-of-the-money (OTM), at-the-money (ATM), or near-the-money. You can also have options that are deep-in-the-money or far-out-of-the-money.

Generally, a call option is in-the-money when the strike price is below the underlying asset price while a put is ITM when the strike price is above the underlying asset price.

You flip the relationship for out-of-the-money options: an OTM call’s strike price is above the underlying stock price while an OTM put’s strike price is below the stock price.

What Is Moneyness?

The moneyness of an option describes the relationship between the strike price of an options contract and the price of the underlying shares. The strike price is the price at which an investor can buy or sell a derivative contract.

Option moneyness may change as the underlying stock price fluctuates. A call option that is out-of-the-money one day could become in-the-money if the stock price rises.

Moneyness may also change throughout the trading day depending on price fluctuations in the underlying stock.
Moneyness of options plays a role in constructing options trading techniques, such as going long or short options, purchasing puts or calls, and executing more sophisticated options strategies.

Recommended: How to Trade Stock Options

How Does Moneyness Work?

Understanding the moneyness of an option is important for different core options trading strategies. As explained earlier, moneyness works by comparing the strike price of an option to the market price of the underlying shares.

Because options are complex, it’s also important to know options terminology.

•   An in-the-money (ITM) option has intrinsic value and time value.

•   An out-of-the-money (OTM) option only has time value, and thus is worthless if exercised.

•   OTM options have zero intrinsic value and thus are cheaper than in-the-money options.

•   At-the-money (ATM) options are rare since it might only occur for a moment when the stock price equals a specific strike price — near-the-money options are more common.

•   A near-the-money option has a strike closest to the underlying share price on an options chain.

Traders who are bullish on a stock may consider purchasing call options that are out-of-the-money, as these could experience significant percentage gains if the stock price rises sharply. They also drop the most if the price moves against the position.

In-the-money options may be more effective for traders anticipating moderate price movements. Due to leverage, ITM options can result in greater potential returns or losses compared to directly purchasing the underlying stock.

The deeper in-the-money an option is, the greater the sensitivity it will have to movements in the underlying shares.

Understanding Intrinsic and Time Value of Options

What’s the difference between intrinsic value and time value? It’s important to understand how these two factors play into the value of options.

The intrinsic value of an in-the-money call option is calculated as the difference between the stock’s market price and the option’s strike price. The intrinsic value of an in-the money put is the strike price of the option less the price of buying the stock.

The difference between the intrinsic value and the actual current price of the option is time value. Options that are in the money always have intrinsic value. Out-of-the-money options have no intrinsic value, but they might have time value.

Time value is influenced by multiple factors, including volatility and time until expiration. Learning about the option Greeks can help traders inform their strategies.

Types of Moneyness

An option can be categorized in four common ways with respect to the relationship with its strike price and underlying share price: in-the-money, out-of-the-money, at-the-money, and near-the-money. Understanding the differences between in-the-money vs. out-of-the-money options is essential for pricing and risk.

In-the-Money (ITM)

In-the-money options have intrinsic value, and may also retain some time value depending on time expiration and implied volatility. For a call option, that means the underlying stock price is above the option’s strike price. A put option is in-the-money when the stock price is below the strike price.

If a call option is in-the-money, the contract holder can exercise the option, receive shares at the strike price, then immediately sell the shares in the market. In-the-money puts allow the option holder to sell a stock at a higher price compared to the market price of the security. Long calls are usually used to place bullish bets on a stock while long puts are generally used when a trader is bearish.

In-the-money options, while having intrinsic value, also have a degree of time value. It is often advantageous for an options trader to exit the trade in the market rather than exercising immediately.

Options that can be exercised at any time before expiration are known as American Style options. Options that can only be exercised upon expiration are European Style. There are other differences between American and European options but the different exercise options are most relevant to this discussion.

Out-of-the-Money (OTM)

An out-of-the-money call option is one in which the strike price is above the underlying stock price. The owner of a call option anticipates that the share price may rise prior to expiration, potentially giving the option intrinsic value.

The seller of a call option benefits when the underlying stock price remains below the exercise price so they can keep the premium they collected when they sold to open the call.

Puts are out-of-the-money when the strike price is below the market price of the underlying shares. The owner of puts is bearish on the stock, so they want the stock to fall below the strike price, so that the puts become in-the-money.

Put sellers, who are neutral to bullish on the stock, hope the share price stays above the exercise price.

Out-of-the-money options do not have intrinsic value. Their premium is made up of time value only. Out-of-the-money options generally have lower premiums compared to in-the-money and at-the-money options, as they have a higher probability of expiring worthless.

At-the-Money (ATM)

At-the-money options have strike prices that match the market price of the underlying stock. These options, like out-of-the-money options, have no intrinsic value. At-the-money options typically cost more than out-of-the-money options, but less than in-the-money options.

This type of option moneyness means that calls and puts are heavily influenced by volatility and time decay of the option.

Near-the-Money

Near-the-money options have strike prices that are very close to the market price of the underlying stock, so they are just slightly in-the-money or out-of-the-money.

Near-the-money options are much more common than at-the-money options since the stock price is rarely precisely at a specific strike price. Near-the-money strikes are used when a trader wants exposure to an at-the-money option that is not available in the market.

Other Moneyness Terms

Other terms for moneyness include deep-in-the-money and far-out-of-the-money. These terms have no real qualitative difference between in-the-money and out-of-the-money, but are simply intensifiers. They are, however, in fairly common usage.

What Moneyness Means to Investors

Option moneyness tells a trader important information. The trader can use the moneyness of an option to help construct a trading thesis.

For example, if a trader expects a stock price to decline significantly in a short time frame, they may consider purchasing an out-of-the-money put option, as its value could increase if the stock price drops sharply.

Moneyness becomes increasingly important in complex options strategies, as multiple option legs can have different moneyness levels. Understanding this relationship is key to managing risk and exposure.

Still, an option holder might exit an option by selling or covering in the market rather than exercising early so that they can capture the time value of an option in addition to any intrinsic value.

The Takeaway

Moneyness describes the relationship between an option’s strike price and the price of the underlying stock. It can help options traders gauge the amount of intrinsic value an option has and inform simple and complex options strategies.

Beyond its role in pricing, moneyness also influences an option’s risk profile and profit potential. Understanding how options move between in-the-money, at-the-money, and out-of-the-money can help traders develop strategies that align with their market outlook and risk tolerance.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

FAQ

How is moneyness calculated?

For a call option, moneyness is calculated by taking the underlying asset’s price and subtracting the option’s strike price. If that is a positive value, the call option is in-the-money. If it is a negative value, the call is out-of-the-money. The moneyness definition describes an option’s strike price relative to its underlying stock’s market price. A call option is in-the-money when the underlying asset price exceeds the strike price for a call to be in-the-money.

For a put option, the opposite is true: Moneyness is calculated by taking the underlying asset’s price and subtracting the option’s strike price. If that is a positive value, the put option is out-of-the-money. If it is a negative value, the put is in-the-money. The underlying asset price has to be below the strike price for a put to be in-the-money.

An at-the-money option is simple when the stock price and strike price are the same. Near-the-money options have strikes very close to the share price.

How are moneyness and delta different?

Option moneyness refers to the relationship between a strike price and the price of the underlying asset. Delta, on the other hand, tells a trader how sensitive an option is to changes in the underlying stock.

How are moneyness and implied volatility related?

Implied volatility tends to be lowest with at-the-money options. It increases when the option moves further out-of-the-money or further in-the-money. The “volatility smile” illustrates how implied volatility varies with an option’s moneyness.

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