What Is a Money Order?

Have you been asked to make a payment using a money order and are unsure what to do? You’re not alone. While many are familiar with using checks, credit cards, and various electronic payment options, money orders are a less well-known option. However, they still serve an important purpose.

Money orders can be a reliable way to make payments. Because the amount is guaranteed, they can’t bounce. Further, recipients can purchase and cash money orders without access to a bank account.

Understanding how money orders work and how they compare to other payment methods can help you handle this kind of payment with ease.

What Is a Money Order?

A money order is a paper form of payment, similar to a personal check. However, it has some unique features. Unlike a personal check, money orders are prepaid using cash, a debit card, or a traveler’s check. The payment is guaranteed, eliminating the risk of bouncing due to insufficient funds. However, the maximum value of a money order is typically capped at $1,000.^[1]

Only the person or business named on a money order can cash it, making it a more secure alternative to cash. Money orders can be purchased at various locations, such as banks, post offices, supermarkets, and convenience stores. Many of these places also offer cashing services, so neither the buyer nor the recipient needs a bank account to use a money order.

Common uses include:

• Paying bills: Money orders are often used to pay bills, particularly by those who don’t have a checking account or prefer not to use electronic payments. Many utility companies, landlords, and service providers accept money orders. 
• Making certain purchases: Money orders may be used to buy goods and services when sellers need guaranteed payment. This is common for online marketplaces or when making a down payment on something larger, such as furniture or appliances.
• Sending money abroad: Since they are accepted in many countries, money orders are useful for sending money overseas. However, when sending money orders to international destinations, fees are typically much higher. 

How Does a Money Order Work?

Money orders work in much the same way as a personal check. The payer purchases a money order and provides it to the recipient. The recipient then has the option to deposit the money order into their bank account, cash it at a bank, or take it to a location that cashes money orders.

Purchasing a money order is a straightforward process. Begin by finding a location that sells money orders, such as:

• U.S. Postal Service
• Payday loan stores
• Grocery store service counters
• Check cashing stores
• Convenience stores
• Customer service or Money Services counter at major big box stores

At the service desk, inform the cashier you need a money order and specify the dollar amount. Make sure to bring cash or a debit card to prepay the full value of the money order, plus any associated fees.

Next, complete the money order form with the recipient’s name and address. Accuracy ensures that only the intended person or business can cash it. Also, provide the buyer’s information, including your name and address. Consider adding a memo to indicate the purpose of the payment, including information such as an invoice number. 

After completing the purchase, keep your receipt in a safe place, as it typically includes a tracking number for use to replace the money order in the event it is lost or stolen.

Comparing Money Orders To Other Payment Methods

Understanding the differences between money orders and other common payment methods can help you choose the right payment option for any given situation.

Money Order vs. Personal Check

While personal checks are written directly from a bank account, money orders are pre-paid. You do not need a bank account to purchase or cash a money order and, because they are prepaid, money orders will not bounce. 

These key features make money orders a popular option for those who do not have access to a bank account or must ensure a guaranteed payment. However, there are often fees involved in purchasing and, sometimes, cashing a money order. Writing a check may also prove more convenient than going to a physical location to purchase a money order.

Money Order vs. Cashier’s Check

Money orders and cashier’s checks are both prepaid payment methods, each offering a level of security. However, there are some key differences.

A cashier's check is issued directly by a bank and is backed by the bank’s own funds. The bank pulls the money from the purchaser’s account and holds it until the check is cashed, ensuring the check is covered. Since money orders are prepaid at the time of purchase, they are backed by the entity that sold them. 

The fees are typically lower for money orders than for cashier’s checks. Since the value of a money order is typically limited to $1,000, cashier’s checks are often more appropriate for larger transactions.

Money Order vs. Wire Transfers

A wire transfer is an electronic method of sending money from one bank account to another, either domestically or internationally. It allows for the transfer of funds, and is typically used for larger transactions, such as making a down payment on a home.

Unlike money orders, which are paper-based and typically have a $1,000 limit, wire transfers are handled through financial institutions and can be for any amount the sender’s bank allows. Wire transfers are typically more expensive than money orders and require both the sender and recipient to have a bank account. 

Money Order vs. Zelle^®

Zelle^® is a digital payment platform that allows users to send money directly from one bank account to another, typically within minutes to people and businesses they know and trust. It’s designed for convenience and speed, primarily catering to those who have access to online or mobile banking.

A money order is a slower form of payment that may be less convenient. You can use Zelle^® directly from a smartphone or computer without needing to visit a physical location, offering ease of use. Many banks may also offer Zelle^® as a free service, eliminating  fees typically associated with money orders.

However, Zelle^® requires access to a bank account and is limited to transactions between U.S. banks. Since it’s entirely digital, Zelle^® also does not provide a physical document or receipt, which could be a drawback for those who need tangible proof of transactions.

Advantages and Disadvantages of Money Orders

Money orders may provide a reliable way to make secure payments. However, they also have some limitations. Consider these potential pros and cons.

Advantages:

• Guaranteed payment: Money orders are prepaid, so there’s no risk of them bouncing due to insufficient funds.
• No bank account needed: You can purchase or cash a money order without a bank account.
• Widely accepted: Money orders are accepted at many locations, including banks, post offices, and some retail stores.
• Private form of payment: Since personal bank information is not exchanged, money orders provide an additional layer of privacy.
• Appropriate for international use: Money orders are appropriate for both domestic and international payments.

Potential Drawbacks:

• Maximum face value: Money orders typically have a maximum limit of around $1,000, making them unsuitable for larger transactions.
• Potential fees: Many institutions charge a fee to purchase money orders, and the recipient may pay a fee to cash it. Although the fees are small, they can quickly add up. Fees for international money orders are also significantly higher than for domestic money orders. 
• Slower process: Money orders are physically mailed or delivered, making them slower than electronic payment methods.
• Less convenient: Purchasing a money order requires visiting a physical location, which is often less convenient than making digital payments.
• Risk of loss or theft: Although more secure than cash, money orders can still be lost or stolen. Replacing them is often time-consuming and may involve additional fees.

Final Thoughts

Money orders may offer a secure, private way to send payments. They provide a reliable alternative to checks and digital transfers, especially for those without bank accounts. 

While they may not be as fast or convenient as some electronic methods, their guaranteed payment and wide acceptance make them a valuable option for many transactions.

If you're considering expanding your financial tools or need assistance with your payment options, the team at PNC Bank is here to help. Reach out to learn more about how we can support your financial needs.