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Money Order Basics

How Money Orders Work

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Money Order Basics

Money orders are used for making payments. When it’s not safe or acceptable to use a check or cash, money orders come in handy. Learn how to use them and what to watch out for.

A money order is a tool for making payments. Think of it as an alternative to a check. Instead of writing a check, you can use a money order to make payments. Most money orders look just like checks, and they’re generally accepted (or preferred) in any situation checks are accepted.

When you get a money order, you pay a money order issuer up front and send the document to whoever you’re paying. You can get money orders at financial institutions, retail stores, and post offices.

Why Use Money Orders?

Sometimes a money order is the safest way to pay. It is unsafe to send cash through the mail because anybody who gets their hands on the money can spend it. However, money orders are made payable to a specific person or organization just like checks are. You can also stop payment on most money orders and track them to see if they’ve ever been deposited.

Why not use a check if money orders are similar? When you write a check, your bank account information appears at the bottom of your check. If you don’t know or trust the person you’re paying, you may be hesitant to hand that information over. They can use those numbers to create fake checks, which will create headaches for you. Money orders allow you to pay without sharing sensitive information.

Money Orders Required

Sometimes you have to pay with a money order because sellers require it. Because you’ve already paid for the money order with cash up front, nobody has to worry about your personal check bouncing. Funds don’t come from your bank account -- the money order is guaranteed by the money order issuer.

While money orders can offer safety to sellers, fake money orders commonly cause problems (just like fake cashier's checks).

No Checking Account

If you don’t have a checking account, you may have to depend on money orders to pay some of your bills. You can walk into a store, pay cash for a money order, and walk out with a document you can use for paying the bills. However, it’s probably best to get a checking account in your name at some point. Money orders cost money, and you may be paying more than you would for a checking account (some checking accounts are free). In addition, there are limits on how you can use money orders.

If you want to move towards opening an account without all of the hassle, you could try using a prepaid account that offers online bill payment; make sure it's free to pay bills, and you can save the time and money you've been spending on money orders (here are some suggestions).

Limitations

While they can be a valuable tool, money orders are not perfect. Sometimes it’s better to use your checking account or a cashier’s check instead.

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