What you should know about money orders

Given all of the payment methods out there, from debit cards to Apple Pay, money orders might seem out of style. But they can claim a place in your finances at times.

Vahid Salemi/AP/File
A street money exchanger counts US dollars, in downtown Tehran, Iran (June 9, 2011). Saving even small amounts at a time can help protect from unexpected expenses draining away your emergency fund.

Given all of the payment methods out there, from debit cards to Apple Pay, money orders might seem out of style. But they can claim a place in your finances at times. Here’s what to know about them.

What is a money order?

A money order is a form of prepaid payment that can be used to pay or send money to people as a safe alternative to cash or checks. Like a check, you specify who will receive the money order and both you and that person must sign it for it to be valid. Money orders typically don’t expire and can be tracked and canceled if lost or stolen. The cost of a money order depends on where you buy one, but it usually ranges from under a dollar to a couple bucks. This can be a bargain compared with some other ways to send money, especially internationally.

When do I need one?

There are times when using cash and personal checks can put you at risk, or they aren’t accepted for payment. Here are circumstances where money orders can be especially useful:

  • You don’t have a checking account and need to pay bills. About 1 in 13 U.S. households doesn’t have a bank account. Since money orders require you to pay in advance, the money isn’t tied to any bank account and can be easily sent to other people. But if you want to store your money and pay for more than just bills, a better solution is a prepaid debit card.

» MORE: NerdWallet’s best prepaid debit cards

  • You’re worried about bouncing a check. Because money orders are prepaid, they can’t be rejected for insufficient funds and aren’t subject to the fees that come with bouncing a check. Some businesses or people may accept money orders but not personal checks because they don’t want to bother with the risk of a bad check.
  • You’re mailing money. A money order helps ensure that only the recipient can use it. Mailing cash, in contrast, can be dangerous since it’s anonymous and can’t be returned if lost or stolen.
  • You need to send a payment more securely. Unlike checks, money orders don’t include your bank account number. This can be important if you’re sending money to a company or person you don’t completely trust.
  • You’re sending money overseas. Not all money orders work abroad, but U.S. Postal Service money orders can be sent to 28 countries including the Bahamas, Canada, Japan and several Latin American countries. You can buy an international money order with a value of up to $700 at a U.S. post office for $4.75 by paying with cash, debit card or traveler’s checks. Another way to send money is through a wire transfer, which is faster but usually more expensive.

» MORE: Best ways to wire money internationally

Where do I get one?

You can buy money orders at banks, credit unions, post offices, check cashing locations like Western Union and MoneyGram as well as at retail stores like Wal-Mart and CVS. On the cheaper end, you can get a money order for $0.70 at Wal-Mart or one for less than $2 at a U.S. post office, but it can be $5 at banks. You can generally send a larger amount with a bank money order, like $1,000. If you’re making a big payment, you may need to buy multiple money orders.

You can generally pay for a money order with cash or debit card, but there may be other options depending on the place. Just steer clear of using a credit card because your issuer might consider it a cash advance and charge you extra for it.

Tips when sending money orders

  • Keep the receipt for your records. You’ll get a receipt either as a carbon copy of the money order or a paper slip separate from the original. Keep this as your proof of payment.
  • Track your money order. Your receipt will also have a tracking number that you can use to verify that the money order got to the intended recipient. If any problems arise, contact the place where you initially purchased the money order to get help. For money orders that get lost or stolen, you might be able to stop payment on it or get a replacement, though either option can cost a fee.

Where can I cash a money order?

Typically, your best bet is to cash a money order at the place that issued it, whether that’s a bank, post office or other location. Check cashing locations, convenience stores and grocery stores can be alternatives but watch out for fees. Wherever you go, you’ll generally need to show identification.

If you don’t need the money right away and you have a bank account, consider depositing it at your bank. For U.S. Postal Service money orders, banks consider them government checks and accept them like regular checks at a branch, ATM or even on a banking app with a mobile check deposit function. Don’t forget to sign the back of the money order before depositing.

Knowing your way around money orders can help you send a payment more safely than cash or check and avoid any unnecessary fees in the process.

This article first appeared in NerdWallet.

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