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How Does a Money Order Work?

how-does-a-money-order-workA money order works similar to a check. It is a terrific option for those that do not have a checking account or do not like to wait while their funds are withdrawn later.

What Are They?

Money orders are safer than cash and are designed to work much like personal checks. A money order still has the Pay To line, the numerical amount to be paid line, the written amount line, and the signature line. Most money orders also have the memo line in the lower-left corner for a short reminder as to the purpose of the money order. The difference between the check and the money order is that the money order is purchased up front.

Instead of a check register, however, money orders come with an attached receipt that the money order purchaser keeps on hand for record-keeping purposes. The receipt is necessary for tracing, should it ever be needed, as well.

Fees Involved

Unlike checks where the buyer pays for checks in bulk-per box in most cases, money orders are charged by-use. Each money order will cost the amount that will be shown plus a purchase fee. For instance, a convenience store sells a money order payable of $45.12; the buyer pays the $45.12 plus the $1.50 fee that store charges, for a total of $46.67. The money order will show only the $45.12 ordered.

In most cases, money order issuers require cash, credit or debit cards when purchasing money orders; do not expect to pay with a personal check. The fees charged differ from issuer to issuer, so shopping around for a low rate is recommended. The money order industry is highly competitive so make sure you are getting the lowest rate for your area. In some cases establishes will waive the money order fee and take a loss to attract customers to other services such as cash checking.

If cashing a money order, expect a financial institution to charge a fee if the receiver does not have an account with the bank or savings and loan.

Availability

Money orders can be purchased almost anywhere in the United States. The US Postal Service sells them as well as banks, and retail outlets, such as convenience stores, gas stations, and even pawnshops.

Around-the-clock availability is one significant advantage to money orders that cashiers’ checks and travelers’ checks do not have. If the retail outlet is open, and it sells money orders, a reliable method of payment is available.

Disadvantages

Postal domestic money orders are limited to a purchase of one-thousand dollars.

 

Resources

“Example Photo Postal Money Order.” Mississippi Department of Banking and Consumer Finance. N.p., n.d. Web. 25 June 2010. www.dbcf.state.ms.us/documents/newdommo.jpg.

Outlets, Check Cashing. “Non-Bank Financial Institutions:A Study of Five Sectors.” Welcome To FinCEN.gov. N.p., n.d. Web. 25 June 2010. http://www.fincen.gov/news_room/rp/reports/html/cooply.html.

“Check Cashing Answers from the OCC.” Help and Frequently Asked Questions about National Banks from OCC’s HelpWithMyBank.gov. N.p., n.d. Web. 25 June 2010. http://www.helpwithmybank.gov/faqs/banking_check_cashing.html.

“Corporate Treasury United State Postal Service.” Mississippi Department of Banking and Consumer Finance. N.p., n.d. Web. 25 June 2010. www.dbcf.state.ms.us/documents/uspsmoltr.pdf.

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