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What is a money order?

Learn about money orders and how they are similar to cash.

Money orders are paper vouchers used to buy goods and services. [©Jupiter Images, 2010]
©Jupiter Images, 2010
Money orders are paper vouchers used to buy goods and services.

A money order is a paper voucher for cash that is used to buy goods and services. Unlike checks that can be written against underfunded or closed accounts, money orders are guaranteed with cash at the purchase point. As such, they are treated the same as cash, with the extra benefit of a designated recipient. They are internationally accepted, readily available and can be a useful substitute for other methods of payment.

Where to Get a Money Order

U.S. and Canadian money orders are available in any amount up to $1,000 at most financial institutions, businesses offering financial services and post offices. A transaction fee usually applies. Cash is required to purchase a money order unless the purchaser has a checking or savings account with the issuing institution. In such cases, funds can be withdrawn from the purchasers account to fund the money order.

How to Use a Money Order

Money orders are three-part forms printed in amounts designated by the purchaser. They are typically endorsed in the presence of the issuing party who then removes one copy of the form. The purchaser fills in the name and address of the recipient, who accepts the top copy as payment for either goods or services, leaving the remaining copy for the purchaser's records.

To deposit or cash the money order, the recipient endorses the back and takes it to a financial institution. With proper identification, such as a driver's license, the money order can be deposited or cashed in the same fashion as a check. Damaged, lost or stolen money orders can often be replaced, sometimes for a small fee. Consumers should consult the purchaser's receipt or contact the purchase point for further instructions.

Avoiding Money Order Scams

Like checks, money orders are available in different colors and designs, making counterfeit detection difficult for consumers. In order to guard against fraud, the United States Postal Service recommends using official U.S. Postal money orders that are verifiable through the money order verification system and display exclusive anti-counterfeiting features, such as watermarks.

Possible warning signs of money order fraud include:

  • Money orders over the amount of purchase requiring cash back
  • Discolored denominations indicating the original amount may have been erased
  • U.S. or Canadian money orders over the $1,000 limit or international money orders over $700
  • Overseas money orders used to make purchases within the United States
  • Requests to exchange cash or wire transfers for money orders, particularly when the contact originated overseas

According to the U.S. Postal Insepction Service, money order counterfeiting techniques are improving. Consumers should take every precaution to verify authenticity and immediately report suspected fraud to authorities.

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