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How do payment orders work?

Money orders are a safe form of payment that can be used as an alternative to checks or cash. These paper documents provide guaranteed funds, but unlike checks, they are prepaid and not tied to a bank account.


How money orders work

Several different types of institutions issue money orders, including post offices and grocery stores. Consumers buy money orders by paying the issuer the amount they intend to send plus a fee.

Generally, money orders can be purchased for any amount, up to the specified quantity. For example, using the Post Office, you can send up to $1,000 anywhere in the United States with one money order.

When purchasing a money order, the sender receives a paper document, similar to a check, showing the payment amount. The document requires the sender to fill in some information, including:

  • Payee name and address
  • Payment amount
  • Sender name and address
  • A note on the purpose of payment.

After completing these fields, the payment order can be sent to the recipient. The recipient can cash or deposit like a check because the full amount has already been paid.

When to use a money order

In some cases, a money order may be safer or more convenient than a personal check or cash.

Some of these situations are:

  • You don’t have a bank account. Money orders are prepaid and do not require a checking account. They allow you to pay bills and receive payments without being tied to a financial institution.
  • You want to send money by mail. If you don’t like sending checks with your bank account information and don’t want to send cash, it may be safer to send a money order. As with checks, only the recipient can cash them.
  • You don’t want to bounce the check. The money order is prepaid, so it is impossible for the bank to refund the money order because the money in the sender’s account is insufficient.

How much is the money order

In addition to the money sent, the cost of a money order depends on where it was purchased, but it usually costs between $1 and $5.

Here’s what to expect in different places for domestic money orders:

  • U.S. Postal Service: $1.45 under $500, $1.95 between $500.01 and $1,000
  • Walmart: Up to $1
  • Kroger: 84 cents with the Kroger Card, 88 cents without the card
  • Wells Fargo: $5

International money orders are uncommon, and institutions that carry them tend to charge more. In the United States, for example, the Postal Service charges a $12.25 distribution fee.

Where to exchange money orders

Money orders can be cashed at many different locations, including banks, grocery stores, or check cashing shops. However, you’ll usually get the best price by redeeming it at the same place where it was issued. This is because some institutions charge fees to redeem orders from other issuers.

Money orders can also be deposited directly into a checking or savings account by taking them to the bank.

To exchange a money order:

  • Take the money order to the bank, credit union, grocery store or post office.
  • Sign the back of the money order – be sure to sign at the counter, not before.
  • Show your ID and money order to the cashier or clerk.
  • Collect money. If the order is deposited into a bank account, it may take a few days to arrive.

What if I lose my money order?

If a money order is lost or stolen, contact the issuer as soon as possible and explain what happened. Issuers may be able to replace or refund lost money orders. If your money order is not honored, the card issuer may cancel it.

Be prepared to provide details including money order tracking number, purchase date and amount, and receipt (if possible). It can take up to 30 days for the issuer to confirm that the money order is lost or stolen.

Fees may depend on the issuer. For example, Western Union charges $15 for a refund if you have a receipt – $3 for money orders under $20 – $30 if you have a receipt, or any refund without a receipt. The Post Office charges a flat rate of $6.95.

Are money orders safe?

A money order is usually a safer alternative to cash or a check because only the recipient can cash or deposit the money order for the amount printed on the front. As long as you keep your receipts, you can track your payments and get them back if lost, stolen or damaged.

There are a lot of money order scams out there. Therefore, if you are not sure if the funds are legal, be sure to verify the funds with the issuer. Report any suspected fraud to the Federal Trade Commission.

Bottom line

Like a check, a money order is a paper document that allows the buyer to specify the payee and amount. On the other hand, they are prepaid, so they work like cash. There is no risk of undeliverable money orders, and if it is lost or stolen, you can usually get a refund or cancel it.

If you’re looking for a safe and inexpensive way to send or receive money, a money order might be a good choice.

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