How Does a Money Order Work?

Money orders are a form of payment that are sometimes very useful if you need to transfer funds to someone. They can be obtained from various outlets, at typically a low fee, and can be a good way to move cash when a person doesn’t have or doesn’t want to use a bank account.

Here, you’ll learn more about what money orders are, how they work, when to use them, and what alternatives to money orders exist.

What Is a Money Order?

Think of a money order as a paper check that can never bounce because it has been prepaid by the sender. It can be cashed or deposited just like a check, but it offers a few benefits over checks beyond never bouncing.

For one thing, if for whatever reason you don’t have a bank account, that isn’t a problem. You don’t need a bank account to get a money order, cash one, or even use money orders to pay bills.

To send a money order, here’s the protocol of the U.S. Postal Service:

1.    Take cash, a debit card, or a traveler’s check. You cannot pay with a credit card.

2.    Fill out the money order at the counter with a retail associate.

3.    Pay the dollar value of the money order plus the issuing fee.

Recommended: Can You Buy a Money Order With a Credit Card?

Where to Get a Money Order

Many of the biggest banks offer money orders and often require that they be purchased at a branch. There can be a $5 to $10 fee when buying a money order worth up to $1,000 (though the fee may be waived for premium accounts).

Sometimes the money order fee is also waived for members of the military. However, many banks require that you already have an account with them to purchase a money order.

Money orders are also issued at places like Walmart (with a maximum fee of $1, and the exact fee varying by location), convenience stores, credit unions, and the Postal Service.

Postal Service fees for money orders are based on the dollar amount: $1.45 for a money order of up to $500, $1.95 for one from $500 to $1,000 (which is the maximum amount for a single money order), and 50 cents for postal military money orders issued by military facilities.

Advantages of a Money Order

Money orders may be safer than some other forms of money. For example, while a check contains sensitive personal information like your home address, phone number, and bank account and routing number (plus the name of anyone else on the account), a money order usually only contains the names of the payer and payee.

So a money order is usually a more anonymous and therefore a potentially more secure method of payment than a check, although some money order issuers may require an address. That’s usually in case the check’s payee needs to contact the sender about the payment.

Sometimes both halves of the transaction may have to include this information. If you’re unsure, the best bet is to just ask.

Potential Drawbacks

Here are a few of the cons of money orders:

•   Fees. While you can pay bills with money orders, the small fees can add up if you’re relying on them for that purpose.

Check cashing stores may charge a flat fee of $2.99 per money order, while some might charge around 4% to 5% to cash a money order. Many banks usually will do it for free. Also note that there are banks that will deposit a portion of the order and then after a couple of days release the rest.

•   Payment limits. Usually $1,000 is the ceiling for most money orders.

•   Inconvenience. The fact that many banks require your presence to process a money order may make putting money orders you receive into use less convenient.

The cap on a money order’s value also means there’s a time investment if, say, you need to pay $2,000 to someone — that’s two money orders, two fees, and twice as much time spent getting them issued.

In addition, not all businesses may accept money orders. If you are trying to use one to pay a bill, check with the payee first. Every now and then, you may encounter someone who accepts only, say, online bill paying.

•   Use in scams. A big strike against money orders overall — and this is why banks can be somewhat cautious in accepting them — is that they can be used in banking scams. Money orders are perceived as a safe way to receive payments, and that is true when they are legitimate.

But the news can share stories about counterfeit money orders that revolve around suspicious prizes, employment opportunities, classified ads, and so on. Because money orders are not checks, it can make them harder to trace. It’s a good idea to keep your receipt for a money order until you are sure the order has been received and cashed.

Alternatives to Money Orders

Sometimes vendors or recipients aren’t able to accept a check, and a money order might make sense. But there are digital age options like peer-to-peer payments or P2P transfers.

P2P platforms are often a free service offered by financial institutions that lets users send and receive money, usually in minutes.

And P2P transfers are generally quick, as fast as a few seconds. Examples of services people use for P2P payments are PayPal and Venmo, as well as Zelle which moves money in a slightly different way, from bank account to bank account, but is usually mentioned in the same breath with the others.

Also, many banks now offer ways to transfer money from one bank to another as part of their services, making it easy to move money between your own accounts and to other individuals and businesses.

Recommended: Pros and Cons of Electronic Banking

The Takeaway

Money orders are a paper financial tool, which, like a check, can move funds. They have the added benefit of being able to be used even if you don’t have a bank account, and the fees involved in getting one can be quite low. However, there is typically a $1,000 cap on the amount of a money order, and it can take some time and energy to get one.

If you’re looking for a simple way to move money from your bank account to another person at any time, consider a SoFi Checking and Savings online banking account. You’ll be able to send funds to a recipient, whether or not they bank with SoFi.

What’s more, a SoFi Checking and Savings Account offers a competitive annual percentage yield (APY) and charges no account fees, which can help your money grow faster. And you get to spend and save in one convenient place.

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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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