In this digital age of debit cards, credit cards, and even virtual currency like Bitcoin, older payment instruments like personal checks have fallen by the wayside. There is one type of payment, however, that is still in use and offers several benefits not found in plastic or virtual transactions – money orders. A money order offers several benefits not found in other methods of payment, but it has a few drawbacks as well.
What is a Money Order?
A money order is somewhat like a personal check with a few major differences. When you write a check, it’s basically a piece of paper that the payee takes to your bank to get money from your account. If the money isn’t there, however, the check bounces – causing fees and other problems. With a money order, the funds are guaranteed because you pay for the money order up front, which means the payee can rest assured the money order won’t bounce like a check might.
How Does a Money Order Work?
You can purchase money orders at banks, post offices, and some retail stores such as Wal-Mart. You’ll pay the amount of the money order plus a small fee (usually about $1). The merchant will print out the money order for you, with the date and amount. You’ll fill out the payee name, as well as your own; some money orders also have space for your address and phone number, but you don’t need to fill this out if you don’t want to.
You’ll get a receipt when you purchase the money order which you should keep for your records. That receipt serves as proof of the money order’s existence, and that you are the payer. The receipt also has a tracking number; once the payee cashes the money order, the tracking number offers proof of payment – and that the payee was the one who cashed it.
Why Would You Use a Money Order?
While most people have a checking account, some don’t, and they can use money orders to pay their bills. Since the funds are guaranteed by the issuer and pre-paid by you, there’s no danger of a check coming back for insufficient funds. That can be a benefit if you’ve had issues with bad checks in the past, or if you don’t want to deal with any possibility of insufficient funds in your account.
For those who are privacy-conscious, money orders can also be a way to make purchases without the tracking inherent in transactions made with plastic. It’s much easier to be both transparent and anonymous when using a money order than with other payment instruments. Since a personal check also includes your bank account number, some may prefer money orders because they don’t reveal that type of personal information.
Money orders are good for sending money overseas as well. The payee can convert them to the local currency with ease, and United States Postal Service money orders can be sent to many different countries around the world. Western Union also offers money order products that can be used overseas.
What Are the Drawbacks of a Money Order?
While money orders do have a number of positive features, there are a few drawbacks to using them. It can be fairly inconvenient to use them, since they are only available at in-person merchants – meaning you can only purchase them during the hours those merchants are open. You’ll also need to know the exact amount of the payment, which means if you’re using them for purchases you’ll need to know any applicable taxes or shipping fees before you purchase the money order.
Sometimes money orders are used in fraudulent scams, and their use can sometimes raise red flags for merchants who have been on the receiving end of a falsified instrument before. In addition, money orders often have a $1,000 limit, so if you’re using them to make a larger payment you’ll have to purchase multiple money orders, which can also mean more fees.
Money orders can be both highly convenient and decidedly inconvenient, depending on what your personal situation is or what you need the money order for. It might be the best option in one case, and the worst option in another. When considering whether you need or should use a money order, think about what your goal is. Are you looking for privacy in the transaction? Ease of use? Does the merchant accept money orders – or even insist upon them?
You might end up sticking with credit cards, debit cards, or even a personal check. But if you ever find yourself dealing with a transaction that requires privacy or guaranteed funds, a money order might work out nicely.