When to Use a Money Order

I grew up watching my mother write out checks to pay our bills, so I understood the concept of a checking account – but I never knew what a money order was. Oddly enough, I remember watching countless TV infomercials peddling gimmicky products that could be paid for “by check or money order.” When I asked someone in college to explain a money order to me, I was told that it was a way for transient people without checking accounts and credit cards to pay their bills. While this is partly true, I learned that there are a variety of occasions when it is not only appropriate but also prudent to use a money order in place of cash or a check.

First, for those unfamiliar with money orders, here is a brief summary of the concept:

A money order is a special kind of prepaid check that was originally designed so that people could send funds safely through the mail. Sold by post offices, grocery stores, Western Union, and even some banks, money orders are a bit like cashier’s checks or certified checks, though they usually have caps around $1000. They are purchased by someone who pays cash up front (or uses a debit card) and are thus not in danger bouncing the same way a personal check could. The exact amount for which the money order is redeemable is printed on both the order itself and on the receipt kept by the purchaser, who then fills in the payee’s name and address. Typically, money orders cost between 50 cents and a dollar – plus the amount of the money order itself. Postal money orders, sold by USPS at post offices, are considered the safest and hardest to counterfeit.

So, you’re still wondering when to use a money order? Although they seem like more trouble than they’re worth, consider these situations:

When to use a money order: Situation #1
You keep a tight checkbook and don’t always trust yourself. If you sometimes cut it close and dip that checking account balance to near zero, you run the risk of bouncing an important check (maybe rent, a court-appointed payment, or something else you can’t pay online). Because bounced checks come with exorbitant fees, it may be worth buying a money order just to be sure there’s no problem.

When to use a money order: Situation #2
You want to pay someone internationally by mail – perhaps a relative in another country? Since your personal check won’t do much good outside the US, you may need an international money order, available from many banks. You can specify how much you need in the receiver’s currency and then pay with American dollars.

When to use a money order: Situation #3
You are mailing money to someone who needs it as soon as it arrives. If you were to write a personal check, the person who cashes it could experience a hold on the funds – sometimes five business days if you are not in the same city or state. Short of wiring money through Western Union or paying a bank a sixable fee to do a wire transfer, a postal money order may be a good choice, as it can be redeemed for cash at a post office without delay.

When to use a money order: Situation #4
You are paying someone who seems to hold onto checks for a long time without cashing them. If you like to reconcile your checkbook with your bank statement but find yourself annoyed by that person who cashes your check 3 or 4 weeks after they receive it, consider using a money order instead.

When to use a money order: Situation #5
You are in the process of switching banks. Perhaps you have not received your new checks yet (which often takes a week or two), but you don’t want to keep writing checks on your old bank account either, or else you’ll never be able to close the account. A money order allows you to use the funds in the account you want to close without waiting for someone to receive and cash a check.

When to use a money order: Situation #6
You are selling an item of value to someone you don’t know well, and you want a safe transaction. For example, a friend of mine sold a computer for $500 to someone he met on his local Craigslist. When they met in person to exchange the item, the buyer paid him with a money order. Why? Because $500 was more than the buyer could take out from an ATM, neither of them wanted to carry that much cash around anyway, and my friend didn’t want to accept a check from someone he hardly knew. They walked to the post office together, and the guy used his debit card to buy a money order. (I suppose they could have used Paypal, but I guess they didn’t think of it).

It’s true that the vast majority of transactions can be handled through online payments from your bank account, handwritten personal checks, cash, Paypal, and credit cards. But every now and then, a money order still comes in handy!

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