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Have you ever tried to pay for something using a personal check, only to be told that you needed certified funds? This happens all the time, and it's because some transactions require guaranteed funds—which personal checks aren't.
Money orders and cashier's checks are guaranteed funds and can be used in these situations as secure payment options backed by third parties. But these two payment methods aren't exactly the same, so it's important to understand the differences between the two.
The Differences Between Money Orders and Cashier's Checks
The major difference between cashier's checks and money orders is their cost and where they're purchased. Money orders are typically offered in smaller amounts, can be bought at many different locations and cost just a few dollars. Cashier's checks, on the other hand, are often issued in large amounts, can be purchased from your bank and cost a little more to get.
Depending on what you're using the money for, here is a little information about the differences between the two payment options:
A money order is essentially a prepaid piece of paper, similar to a check, that you get in exchange for cash. You can use them to send people money, and recipients can easily deposit them into their bank accounts. Many places sell money orders, including the post office, Walmart and Western Union, as well as various supermarkets and convenience stores. Money orders cost just a few dollars and can typically be obtained for amounts up to $1,000.
A cashier's check is similar to a money order, but is issued by a bank and requires a bank account. When you get a cashier's check, your bank will either hold or remove the funds from your account and give you a bank-issued check in the amount you request. Cashier's checks can be used just like a money order or personal check; the only difference is that since the funds are guaranteed by a bank and already removed from your account, recipients can have immediate access to the funds. Cashier's checks, while more expensive than money orders, may be considered more trustworthy as they are backed by a bank, but can still be obtained for just a few dollars—typically under $10.
When to Use a Money Order
Unlike a personal check, when you give someone a money order, they know the funds are guaranteed. With a normal check, it typically takes a few days before recipients can access the money because the receiving bank has to make sure the sender has enough to cover the amount. Use a money order in situations where you need to pay someone and need the payment to be secure but available immediately.
Because a money order is prepaid and backed by a third party, it can be used for situations where you need to provide immediate funds, but still want to do it securely. For example, you could use a money order when paying for something at the Department of Motor Vehicles, where funds need to be transferred on the spot. When you fill out a money order, you'll sign it and select a recipient, creating an official record and making it a more secure option than cash.
Money orders can also be advantageous for people without a bank account. If you have bills or need to make an official payment, money orders offer a secure way to send money without needing to have a bank account. It depends on where you buy it, but some issuers allow you to use a credit card, check or debit card to purchase a money order. Check with your issuer before purchasing to be sure.
When to Use a Cashier's Check
Cashier's checks are typically used when you need to make a large purchase and are asked to bring guaranteed funds—like when you are closing on a home or purchasing a new car. Rather than carrying around a bag of cash, cashier's checks offer a great way to securely transport and facilitate large payments.
Cashier's checks are also great options for people with bank accounts who need to make payments with certified funds. To get a cashier's check, you'll have to go to your bank and first make sure you have enough funds to cover the check amount. (The bank will hold your funds until the check is cashed.) You'll then ask the teller for the cashier's check, give them the recipient's information and pay the fee associated with the check.
Protecting Against Money Order and Cashier's Check Fraud
Always make sure you are purchasing your money orders and cashier's checks from reputable vendors. And remember to fill out your information on the money order to avoid anyone stealing it or using it for other purposes. Also keep your receipts for certified checks and money orders; that way, if you need to stop the funds for some reason, you can contact the issuer and follow their instructions for cancelling the payment.
Also watch out for situations where you may be accepting money orders from another party. These documents, while secure if authentic, can be easily forged and may fool an unsuspecting eye.
To learn more about protecting yourself from fraudsters, check out Experian's guide on fraud and identity theft.
Understanding Your Total Financial Picture
While cashier's checks and money orders are great for certain situations where certified funds are required, relying on conventional banking options might be better for everyday payments. Using a credit card or debit card for bill payments, or using a bill pay option with a bank, can be easier, will cost you nothing and in many cases will be more secure than the certified option.
Opening a checking account can be easy, and once you have one, consider using autopay and bill pay to make all of your payments securely each month. If you don't already have one, think about also getting a credit card that can help you earn valuable rewards points while you spend. Credit cards are accepted by nearly all merchants and are helpful for making secure payments.
If you're thinking about applying for a credit card, make sure to get a free copy of your credit reports and scores from Experian so you can understand what's in your credit file. To learn more about understanding your credit reports and what's in them, see "Understanding Your Experian Credit Report."
While using a cashier's check or money order may be unavoidable in certain situations, conventional banking options for payments may be simpler—and could help you improve your financial future.
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