Whats Money Order

Best Answer - Chosen by Voters

In the United States, a money order is a type of check intended to provide a safe alternative to sending cash (in the mail). Money orders are typically sold by third parties such as the Postal Service, grocery stores, convenience stores, and financial service companies such as banks who often do not charge for money orders to their clients. Money orders are often employed by people who have a checking account as a way to offer greater security as money orders would not contain their routing number or account number such as on a check.

A money order as purchased by a presenter typically consists of two portions: the negotiable check for remittance to the creditor, and a receipt the customer retains for his records. The amount is imprinted by machine or checkwriter on both portions, and similar documentation, either as a third hard copy or in electronic form, is retained at the issuer and agent locations.

A money order is purchased for the amount desired. In this way it is similar to a certified check. The main difference is that money orders are usually limited in face value to some specified figure (for example, $1,000 for Postal money orders as of February, 2006) while certified checks are not.

One of the reasons for the growing popularity of money orders is that, unlike a personal bank check, they are pre-paid and therefore cannot bounce. The only hypothetical reasons a money order could ever bounce are if the payment is stopped by the maker of the money order, if the issuing company goes bankrupt, or if the money order is fraudulent or counterfeit.

Money orders are generally considered safer for payments from parties unknown to the payee, as opposed to a personal check drawn on the maker's bank account. This is mainly because money orders are unlikely to bounce due to insufficient funds, since a money order is drawn on a bank's funds rather than on an individual's bank account like a personal check is. And while an individual's checking account balance is susceptible to running out due to personal whims and incompetencies, a banking institution's funds generally are not. In recent years, partly for this reason, money orders have become a preferred method of payment by sellers of goods over the Internet, but are rapidly being replaced by electronic transfer services (such as PayPal) as the most popular method.

On the other hand, recently (2006) there has been a significant increase in sightings of counterfeit postal money orders. Often, such a counterfeit will be sent to an unwitting victim who is instructed, on some pretext, to deposit it at his bank and return some of the funds. The victim is more likely to trust an "official" money order than a regular check, for the reasons given above. However, because money orders are paid through the postal service rather than the usual check clearing system, they often take longer to "bounce" than an ordinary check. When this finally occurs it is charged back to the victim, who may already have sent back the funds, for which he or she must take the loss. For this reason banks are now applying increased scrutiny to incoming money orders, and are becoming more reluctant to accept them. A safer approach is to cash them at a post office. In this case, the authenticity of the item is immediately determined, and if deemed good, the holder is paid and absolved of further responsibility for the funds.

Another caveat to the oft-purported safety benefit of mailing money orders is that if they are damaged in the mail, they may literally become worthless. This is because when trying to redeem the money order (whether by the recipient, or by the original purchaser―if it was damaged enough to be returned to the sender), some institutions will not cash it, nor issue a new one, if the routing number on the bottom of the money order is unable to be read by their processing machine (as might happen with a torn or water damaged money order), commonly even if a receipt is present. When this happens, a claim must usually be filed with the issuing bank or institution. Unfortunately, most of the institutions that issue money orders charge a "non-refundable service fee," which is sometimes greater than the value of the money order itself―especially for lower denomination money orders (the service fee[1] for filing a claim with MoneyGram, for example, is $12). The claim then generally takes 30 to 60 days to be procesed, though it may be rejected. Sending cash in the mail, on the other hand, while still generally discouraged, would at least offer a greater chance at redeeming the entire value of the amount sent should damage occur (unless the envelope or package is known to be carrying cash and is stolen), since most banks will exchange damaged bank notes so long as the bill is at least more than fifty percent intact

Source(s):
http://en.wikipedia.org/wiki/Money_order