What Is a Money Order and When Should You Use It?

Buying or selling items online. Sending money to a loved one overseas. Putting down a security deposit on a new apartment. These situations all have one thing in common: They’ve got the potential to put your money at risk.

As much as we love the freedom of cash, there are times when you need a payment method that’s a little more secure. And sometimes cutting a personal check just doesn’t cut it, either. That’s when a money order comes in.

But what is a money order? And when is it a good idea to use one?

What Is a Money Order?

A money order is basically a prepaid check.

Let’s say you’re buying your cousin’s old sound system for $500. You’ll go to a business that sells money orders—like a grocery store, pharmacy or post office—and buy a $500 money order. They’ll print it out with all the right details, including your name, who it’s for and the amount.

You’ll give the money order to your cousin. He’ll give you the sound system. And then he’ll take the money order to the bank and either cash or deposit it, just like a check. It’s that easy!

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The money order helps the sale go smoothly because it’s prepaid, so your cousin knows you actually have the money. And it helps protect you too (more on that in a minute).

Just make sure you buy your money order with cash or a debit card—no credit cards. Charging it to a credit card is basically like taking out a loan: You get something with real cash value and say you’ll pay it back. But for all the business knows, you might not.

So most businesses won’t accept credit cards as payment for money orders. The ones that do will charge you extra fees to try to make up for the risk they’re taking on.

Don’t waste your money—just pay up front with cash or debit.

Money Orders vs. Cashier’s Checks vs. Certified Checks

When you hear about money orders, you’ll usually hear about cashier’s checks and certified checks too. The main differences are where you get them, how much they cost and how much they’re worth.

Money Orders

You know what money orders are and where to get them, but you may not know most of them have an amount limit of $1,000 (or $700 for international money orders).

You can still use them to buy a more expensive item—you just need more of them. For example, you can buy a $2,000 car with two money orders worth $1,000 each.

Whenever you buy a money order, you’ll pay the business a processing fee. That’s how they make money on these things. Not much money, though: Post offices and stores charge less than $2 per money order. Some stores, like Walmart, charge less than $1.

But you can expect to rack up way more fees if you buy from a bank.

Most banks charge about $5 per money order. If you use them regularly, those repeat fees add up.

And the bank is charging you more than five times as much as other locations for the “privilege” of sending your money somewhere outside their building. This is just another way they use outrageous fees to suck the life out of their own customers.

The best thing to do is shop wisely and purchase your money order from a store or post office instead.

Cashier’s Checks

Cashier’s checks are also prepaid checks, but you can only buy them from a financial institution like a bank or credit union.

That’s partly because they can be worth more money, since they don’t usually have an amount limit.

But it’s mostly because when you buy a cashier’s check, you’re actually putting your money into the bank’s account. When the recipient deposits the cashier’s check, the funds come out of the bank’s account, not yours.

This transfers the risk to the bank, so they use that increased risk as an excuse to charge even more fees—around $10.

Certified Checks

Like cashier’s checks, certified checks don’t have an amount limit and only come from banks and other financial institutions.

But certified checks aren’t prepaid—they come from your checking account like a personal check would.

Certified just means someone who works at the bank looked at your account and said, “Yep, you’ve got enough money.” That way, the person receiving the check knows it won’t bounce.

The crazy part is, banks charge as much or more for certified checks than for prepaid ones! Most fees run from $5 to $15, which is a ridiculous price to pay for someone taking three seconds to print and stamp a check.

The other problem is that since certified checks withdraw directly from your account, your name and account info are written on them. And that can be a really bad idea.

Why Should I Use a Money Order?

Money orders let you send and receive large amounts of money safely, without stupid bank fees. And most important, they help guard your personal information.

Money orders will include your name and address, but unlike a personal or certified check, they won’t include your bank account or routing numbers. It’s a lot harder for people to steal your financial identity without that info.

And that’s good—you need to make identity theft as difficult as possible. Because the sad truth is, thieves and scammers will steal your identity and money if they get the chance. That’s why identity theft protection is a must.

Every money order also comes with a receipt and a tracking number for extra security.

The receipt helps you prove a money order’s value. When using cash for private sales or gifts, you may not always get written proof of the transaction. Someone could say, “Hey, you owed me $500 and only gave me $100.” But with a receipt, you can show that the money order was worth the full $500.

And since your money order has a tracking number, you can tell exactly where it is and make sure it reaches the right person. That cuts way down on the risk of someone lying about lost funds—and on the chance of an actual loss.

When Should I Use a Money Order?

Here are a few of the most common times when you might need to pay with a money order:

Buying From a Private Seller

Remember, you’re not buying a $5 garden gnome at a yard sale. We’re talking about paying for bigger items—like electronics, collectors’ items or used cars—from a private seller.

Since money orders protect your banking info, you can feel safe knowing the seller can’t access your bank account or debit card info from the money order. That’s super important if you’re buying from an online seller you don’t know (or if your neighbor Joe turns out to be a huge jerk).

Selling to a Private Buyer

And when you’re the seller, you need to know the buyer can actually pay for whatever you’re selling. The last thing you want is for them to write a bad check and disappear into the sunset.

You can help prevent that by asking buyers to pay with a money order for valuable items. Since the money order is prepaid, you can feel pretty confident that they have the funds.

Sending Funds

These days, you can send money through a ton of digital payment platforms. But there are still some legit reasons to send money physically—like putting down a security deposit on a new apartment or giving funds to a family member in the military.

Mailing cash or checks can be risky. They might get stolen, lost or damaged. And that risk goes up if you’re sending money overseas because of the extra processing and travel time.

But with a money order, the tracking number lets you see where it is and when the recipient got it. And only the person whose name is on the money order can use it. So if it does get lost or stolen, it won’t do the crook any good.

Paying Debts

This one might surprise you, since most people pay debts with checks or online. But if you owe a lot of money or you’re dealing with scummy collection agencies, these payment methods may actually cause more problems.

Let’s say you send the collection agency a check. Just like scammers, collections agents can use the account and routing numbers from your check to access your account. And they’ll do the same thing with your debit card (which is why you should never give collectors debit card access).

Even if you said they could only take $100, most of these companies don’t listen. They’ll take the money you planned to use for the house payment, the utility bill and the kids’ clothes. They don’t care about your family—they just want their money.

What’s really wild is that not only will most banks let this happen, they’ll also charge you overdraft and low balance fees after the collectors drain your account. Talk about kicking you while you’re down!

Since you can’t count on your bank to protect you, you may have to take matters into your own hands and pay your debt with a money order.

Collectors can’t use money orders to access your account, so you can pay what you’re truly able to—not what they’re trying to scare you into paying. (When you’re behind on a lot of bills, you may have trouble catching up because you’re not sure how much you can afford to pay on each one. If that’s you, start with these steps to get back on your feet.)

The important thing is, you’re still paying what you owe. You’re just protecting your accounts and identity from crummy collectors while you do it.

Avoiding Money Order Scams

As great as money orders are at protecting your identity, you still need to use good judgment and watch out for scams, like counterfeit money orders.

You have to be on your guard because your bank won’t catch these scams for you. That’s right—these financial pros can’t recognize a money order scam when they see one.

They’ll let you deposit a fake money order and spend the “funds.” Then, when they realize those funds never existed, they’ll make you pay back what you spent. And if that wipes out your account, that’s not their problem. In fact, they’ll charge you fees for overdrafting your account.

So not only will your bank leave you on the hook for a scam you both fell for, they’ll also kick you while you’re down.

And if you think you won’t find yourself in this situation with your bank, think again. Fake checks—including money orders—are more common than you might realize. People reported over 42,000 fake checks to the Better Business Bureau between 2015 and 2017.1

The good news is that you can take steps to protect yourself, like calling the business that issued the money order—MoneyGram, Western Union and so on—to verify that it’s legit.

You should also make sure you trust the person you’re working with. If you’ve got a bad feeeeeling (as we call it in the South), you’re probably right. Trust your instincts and keep asking questions until you’re sure the money order is real.

And finally, find a bank that’s worth working with. In case you haven’t noticed, banks use money orders to overcharge and take advantage of you. You don’t need that kind of aggravation. You need a bank you can trust—Gazelle.

Gazelle is the only bank that’s designed to help you truly win with your money. No stupid fees, no overpriced money orders—just easy online banking and world-class customer service. Make the switch and sign up to be a Gazelle beta user today.

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