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Key Points:
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Money orders are a quick alternative to checks that don’t require a bank account to send.
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Many providers offer money orders, including the post office, banks, grocery stores, and more.
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Money order fees vary by issuer.
Today, money orders seem like an anachronistic throwback to a legacy banking era when financial transactions demanded manual processing. When we’re offered a range of digital, instant, and trackable ways to send and receive money, there’s no point in relying on money orders – right?
Despite outliving everyday utility, money orders remain useful tools when executing financial transactions in niche circumstances today. Like deciding between P2P payments, ACH transfer, crypto, or credit cards, the key to using money orders effectively is understanding where they fit within an overall payment and financial instruments ecosystem.
What is a Money Order?
A money order acts like a check, but instead of withdrawing cash from your banking account when the recipient cashes the check, a money order's full balance must be paid upfront. The most common money order transactions include you – the sender – going to a bank services center or money order issuer (like Walmart) and giving the clerk or teller the entire money order amount in cash, plus any fees. For example, if you send a $1,000 money order and the bank charges $2 per transaction, you'll hand the teller $1,002 in cash. In effect, money orders act as a secure funds transfer method that’s safer than carrying cash.
Money orders’ cash basis means you don’t need a banking account to send or receive money, unlike other options, including most digital financial instruments or transaction platforms. If you do have a banking account and don’t want to walk around with a wad of cash, most money order issuers let you swipe a debit card to fund a money order.
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When Is a Money Order Useful Compared to Other Payment Methods?
Technically, you can use a money order to satisfy any debt or payment method requirement since it's legal tender, like cash. In reality, though, you’ll use a money order under three conditions:
- The payment amount isn’t too large – money orders are usually denominated in $1000s, so the greater the payment total, the more of a hassle generating money orders becomes.
- You know the exact payment amount.
- There’s a need for rapid and verifiable payment, but standard digital processing is unrealistic or impractical.
One of the most common money order uses is when placing small amounts of money into an escrow account; for example, earnest money payment methods used during homebuying processes are usually either a money order or wire transfer.
In both cases, there’s a predetermined amount and a need for immediate and verifiable payment, so waiting for a check to clear isn’t practical. At the same time, industry-imposed digital limitations on secure funds transfer methods mean escrow companies won't usually process digital payments. Since wire transfers tend to have high fees, a money order is most often used in these cases.
How Do I Send a Money Order?
Sending a money order is a bit more involved than using an app like Venmo or even writing a check, but though somewhat time-consuming, it isn't hard.
Step 1: Find a Provider
If you need to send a money order, plenty of providers are happy to help. In addition to Walmart, Western Union, gas stations, and grocery stores, you can also get money orders from your local postal orders center or post office and many banking or credit union branches. Fees vary by provider but tend to be less than $5 per money order. Sometimes, the provider determines the fee by the total sent. For example, the US Postal Service charges $2 per money order up to $500, but $2.90 if the money order is between $500.01 and $1,000.
In some cases, the provider will require a photo ID if the amount is over $1,000, so err on the side of caution and bring your driver's license.
Step 2: Fund and Fill Out the Money Order
The teller, cashier, or customer service representative will help you fill out the money order, but the process is pretty straightforward. After paying (with cash or a debit card), you’ll fill out:
- The recipient’s name after the line on the money order that reads Pay to the Order Of. Check with the recipient if you’re unsure of the spelling or whether to address it to an individual for business transactions – you can’t cash a money order that isn’t directly and properly addressed to you!
- Your name, address, and phone number. Just like mailing a letter, the other party needs to know how to contact you if there’s a problem.
- Include the account number if it's a bill, like gas or electric. There’s usually a special field on a money order that says something like Payment For (just like a check) that's perfect for adding your account number. This helps avoid confusion and ensures your cash pays the correct bill.
- Your signature on the bottom, like a check. Don’t sign the back, though! That’s the recipient’s field.
Step 3: Receive and Keep the Receipt
That's it! Your money order provider will give you a receipt to retain for your records, and, in some cases, you'll be able to cancel the money order if it's lost or damaged using the receipt. Now you just send or deliver the money order to the intended party, and you're all set. It's usually good practice to get receipt confirmation once the money order changes hands, but that's true of all cash and similar financial instruments.
Why Are Postal Money Orders on The Decline?
Volume of Postal Money Orders by the Federal Reserve
The use of postal money orders has declined significantly over the past few decades, dropping from 230 million in 2000 to 62 million by 2023. This can be attributed to various factors such as the rise of digital payment methods, wider accessibility of banking services, and a shift in consumer preferences.
How do I Cash a Money Order?
Cashing it is simple if you're on the receiving end of a money order. Like issuing a money order, local providers like Walmart and gas stations will cash it alongside banks and the post office. Call first before leaving, though – not all institutions that issue money orders will cash them, and some have restrictions on which "brands" they'll cash. For example, Walmart will only cash MoneyGram money orders, which is also the brand that Walmart issues.
If you’re willing to wait, you can also deposit a money order with your bank services branch or (sometimes) an ATM into your checking account. If your bank offers mobile deposits, you may even be able to cash them with an app. In these cases, the money order is treated like a check and the funds will appear in your account once cleared.
You’ll definitely need ID to cash the money order if you aren’t using mobile deposit or an ATM so, just like sending one, bring your driver’s license or other identification along.
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How Much Does it Cost to Cash a Money Order?
It'll likely be free if your bank services money orders and you’re a member. If not, banks tend to charge nominal fees to cash a money order like they would for any non-customer transaction. The same applies to independent retailers like gas stations or grocery stores.
Note that the US Postal Service cashes money orders for free, no matter the amount, so they’re usually the best bet during standard business hours if you have a local postal orders office available.
Conclusion
You may not use or see money orders daily, but when you need them, you'll be glad there's an easy and safe way to transfer cash without carrying around stacks of bills or having to transfer funds from a bank account. Money orders operate much like checks but, with the added benefit of acting as an all-cash transaction, cut the waiting time and risk associated with waiting for clearance and overdrawn funds.
Can I pay for a money order with a credit card?
A handful of providers let you pay for a money order with a credit card, but it’s rare. Note that, in many cases, your credit card company will treat a money order as a cash advance – which often has a higher interest rate that starts accruing immediately.
Is a money order the same as a cashier’s check?
No. Cashier’s checks tend to be used for larger purchases and have a few more safeguards in place to protect against fraud.
Do money orders expire?
Money orders don’t technically expire, but if you don’t cash them within a specific timeframe (usually 1 – 3 years), you may have to pay fees from the total that reduces the money order’s cash value.
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Jeremy is a finance and investment writer who works with stock research platforms, wealth managers, and investment funds to deliver value to clients and customers. He couples his lifelong interest in financial topics with an MBA from the University of California - Davis, and loves breaking down complex topics to educate new and experienced investors alike. He lives in Austin, TX with his wife and young son.
