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How Does a Money Order Work?

December 14, 2020 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

How Does a Money Order Work?

Money is fluid, meaning it can be readily converted into many other forms for any number of reasons. Money orders are one form of payment, although they (like checks) may seem like a pre-internet, musty relic if you don’t know much about them. Sometimes, though, they can be useful.

For those of you who are new to money orders, here’s a guide.

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.

Recommend: 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 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 88 cents, 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: $1.25 for a money order of up to $500, $1.75 for one from $500 to $1,000, and 45 cents for postal military money orders issued by military facilities.

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Another Possible Advantage

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 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 in case the recipient 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

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 3.99% to 4.99% to cash a money order. Many banks usually will do it for free, but there are banks that will deposit a portion of the order and then, after a couple of days, deposit 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.

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 scams. Money orders are perceived as a safe way to receive payments, and that is true when they are legitimate.

But the news is full of 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 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 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.

Other options are covered in this guide on how to transfer money from one bank to another, including transactions between accounts you own, and between you and other people.

A P2P Service With Perks

One of the best things about money is the freedom to spend it on whatever you want, in whatever fashion that works best for you. The days of paper checks and money orders feel numbered.

But with all the P2P apps and services out there, it can feel tough to know what you might actually need. One thing’s for sure: Simple, quick P2P transfers aren’t going anywhere.

A SoFi Checking and Savings® online banking account allows a member to send money to anyone, anywhere, even if the recipient does not have a SoFi Checking and Savings® account. If the recipient does, the transfer happens instantaneously.

There is no minimum to open a SoFi Checking and Savings® account, and there are no monthly fees or many other common types of fees.

Try easy P2P transfers with SoFi Checking and Savings.®

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