How Does a Money Order Work?

A money order is a secure way to send money to another party without using cash or a personal check. It’s often used when the recipient wants a fast, guaranteed form of payment, or when you don’t have access to a bank account. You pay for the money order up front, which ensures the funds are there when the recipient cashes it.

Read on for a closer look at how money orders work, their pros and cons, and how they compare to other forms of payment like a personal check, cashier’s check, or wire transfer.

What Is a Money Order?

A money order is a paper document that guarantees the recipient will receive a specific amount of money, generally up to $1,000. Because it’s not tied to a bank account, a money order can be a safer option than a personal check when paying someone you don’t know well. It can also be a good payment option if you don’t have a bank account, since you don’t need to have access to a checking account to get a money order or cash one.

You can buy a money order for a small service fee from many banking institutions and other locations. To fill out a money order, you typically need to provide the recipient’s name and address, as well as your own name and address. You’ll have an option to add notes to the memo field (such as what the payment is for or an order/account number that identifies the bill being paid), and will need to sign the front of the money order.

Typically, you can pay for a money order with cash or a debit card. In some cases, you may be able to buy a money order with a credit card, but keep in mind this may count as a cash advance, which typically comes with interest and fees. However you pay, you’ll need enough money to cover the value of the money order plus any issuing fees.

You’ll get a receipt for the money order that has a tracking number you can use to verify that the money order got to the recipient. It’s wise to keep this in a safe place until the money order has cleared. Should the money order get lost or stolen, you’ll need the tracking number to replace it.

Where to Get a Money Order

Many banks and credit unions offer money orders, though you generally need to be an existing customer to purchase one. These institutions usually charge a fee of around $5, but the fee may be waived for premium account holders.

You can also purchase a money order at some large retailers (like Walmart), convenience stores, grocery stores, drug stores, stores that offer check cashing or money services (like MoneyGram or Western Union), and at a U.S. Post Office. Fees vary by issuer. Walmart tends to have the lowest fees — up to a maximum of $1. Postal Service fees, at the time of publication, are $2.35 for a money order of up to $500, and $3.40 for one between $500 to $1,000.

Advantages of a Money Order

Money orders can be a useful financial tool for several reasons:

•  Security: A money order is safer than cash, since it can only be used by its intended recipient. And since it’s prepaid, there’s no risk that a money order could bounce due to insufficient funds. This form of payment also offers privacy, since it doesn’t include sensitive personal information like your bank account and routing number.

•  Accessibility: Money orders are available to anyone, including those who are unbanked. You don’t need a bank account or credit history to use this form of payment — you can use cash or a prepaid debit card to buy a money order. Money orders also offer flexibility for recipients, since you can cash them at multiple locations (such as your bank or a check-cashing store).

•  International use: Some money orders can be sent internationally, making them a simple and secure way to send money overseas. Just keep in mind that not all providers offer international money orders. And as of October 1, 2024, the United States Postal Service no longer sells international money orders.

•  Paper trail: Each money order includes a receipt and tracking number. This makes it easy to trace the transaction if the recipient claims they did not receive the money or if it gets lost in the mail. Just keep in mind that you’ll likely need to pay a hefty processing fee to replace a lost or stolen money order.

Disadvantages of a Money Order

While money orders can be useful, they are not without their drawbacks:

•  Fees: While the fees are small, they can add up — especially if you need to send multiple money orders. If you receive a money order, you also typically need to pay a fee for cashing a money order somewhere other than your own bank or credit union.

•  Payment limits: Domestic money orders typically cap out at $1,000. If you need to send more, you’ll need to buy multiple money orders and pay separate fees for each one.

•  Inconvenience: You must travel to a physical location and speak with someone in person to purchase a money order, then deliver or mail it to the recipient, all of which can be time-consuming. You can’t complete the transaction online.

•  Use in scams: Money orders can potentially be forged or used in banking scams. If you deposit a money order from someone you don’t know in the bank, it’s a good idea to wait until the money clears before spending it. Also be wary of sending a money order to an unknown party — once it’s cashed, it can be difficult (if not impossible) to get your money back, even if it was due to a scam or fraud.

Recommended: How to Deposit a Check

Alternatives to Money Orders

Depending on your needs, you might consider other options for sending and receiving money:

•  Cashier’s check: Issued by banks, a cashier’s check is backed by the institution’s own funds and generally has no upper limit. This form of payment can work well for larger dollar amounts, preventing the need for buying multiple money orders, and some payees specifically request them. However, you generally need to have an account at the issuing bank, and fees tend to be higher than those for money orders.

•  Personal checks: If both parties have bank accounts and trust each other, a personal check can be a simple and free way to make a payment. They’re easy to track and don’t incur fees. However, they can bounce if the payer does not have sufficient funds in their account.

•  Wire transfers: A wire transfer is a way to electronically move funds from one person’s bank account to another person’s account, often within the same day. Wire transfers can be a good way to send large sums of money quickly, but are generally more expensive than money orders.

•  Mobile payment apps: Apps like Venmo and PayPal offer instant, convenient ways to send money digitally. These can be ideal for personal use but may not be accepted in formal transactions or by certain businesses.

•  Bank transfers: You can make a payment directly from your bank account to a merchant’s account through online banking. This can be a good choice for regular payments, such as rent or utility bills. It’s free and fast, but does require both parties to have bank accounts.

The Takeaway

Money orders can be a useful payment method when you need to send money securely. They don’t include your bank account number and can’t be rejected for insufficient funds. And unlike cash, only the recipient can use it.

But money orders typically come with caps and fees. They also require a fair amount of legwork to buy and send. For large or frequent transactions, a cashier’s check, online payment, or payment app may be more efficient and cost-effective.

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