Money orders offer guaranteed payment of funds upfront for goods and services. Think of a money order like a prepaid check. There isn’t the requisite waiting around for the bank to clear the funds.
Paying via a money order might be a good option for a wide range of scenarios – transactions occurring between two people who don’t know each other too well, an establishment that wants a payment in cash or someone who doesn’t have a checking account but wants to purchase goods or services.
Paying an individual or institution via a money order sounds like a good idea, but what if you want to charge a money order through your credit card? Is this in your best financial interest?
Find out why paying for a money order via a credit card should be a last resort for most individuals.
See related: Can you send money with a credit card?
What is a money order and how does it work?
Money orders essentially work like cash since funds are guaranteed. The only caveat is a specific individual or institution is specified on the money order. Once a money order is purchased, the purchaser must fill out the recipient’s name, the amount and, in certain cases, the buyer’s address and phone number.
“A money order is a paper certificate issued by a government agency or banking institution,” said Steve Weisman, a Massachusetts-based attorney and professor. An individual pays the money order issuer cash to cover the money order plus a small fee.
One of the advantages of using a money order over checks is it “avoids putting bank account numbers or routing numbers on the document,” said Zach Reese, a CPA from Atlanta.
It is a secure way to make a payment, and there is less likelihood of fraud or identity theft associated with checks.
Money orders often have a receipt, so individuals can track if and when a recipient receives payment. It is possible to put a stop payment on a money order, and it is a safer option than sending or mailing cash.
Where can I buy a money order?
Money orders can be purchased from the U.S. Postal Service. Daily, approximately 269,000 money orders are sold at post offices across the country.
In addition, money orders can be purchased from “supermarkets and convenience stores, through checking or savings accounts in banks, credit unions, money transfer shops and payday loan stores,” said John Li of Fig Loans. Money orders usually have a maximum limit of $1,000. Depending on where a money order is purchased, there is a fee associated with the transaction.
Can an individual buy a money order with a credit card?
Yes, but only from a couple of merchants – Western Union and 7-Eleven stores. The U.S. Postal Service and other places will accept only cash, debit cards or traveler’s checks for a money order, according to Chris Panteli, financial expert and small business owner.
If a buyer decides to charge a money order to a credit card, be aware the credit card company may consider a money order purchase to be a cash advance, which has a downside. Significantly more interest is charged on a cash advance than a regular purchase.
See related: How credit card interest works
What are the pros of buying a money order with a credit card?
Financial experts are hard-pressed to identify more than a few positives associated with purchasing a money order via a credit card. If an individual has no other option and chooses to purchase a money order, there are some benefits:
- A credit card offers the ability to pay a small debt even if the individual doesn’t have cash on hand.
- Having the ability to purchase a money order with a credit card in an emergency situation may be helpful.
What are the cons of buying a money order with a credit card?
Most experts agree that buying a money order with a credit card isn’t the most cost-effective option for individuals. Michael Sullivan, personal financial consultant at Take Charge America, explains the disadvantages:
- It is more expensive. Using a cash advance adds a 3% or greater fee plus the interest cost. When added to the amount of the money order, this can make the purchase rather costly – perhaps even more than obtaining a cashier’s check from a bank.
- It isn’t easy to find locations that will allow the purchase of a money order via a credit card. Only Western Union and 7-Eleven stores allow purchases of money orders via credit cards.
- No rewards or points are credited because cash advance payments don’t qualify for them. Thus, incentives or discounts for future transactions are eliminated.
- A grace period doesn’t apply to pay off a cash advance. Cash advances begin accruing interest immediately.
- There are higher fees associated with cash advances. Cash advance fees are usually set at 5% or $10, whichever is greater. For a $200 money order, you’d pay $10 and for a $500 money order, you’d pay $25.
- The credit card will take a longer time to pay off because of the fees and accrued interest.
- Your credit card company will not reimburse you for the cost of a lost money order purchased with a cash advance.
One additional disadvantage is “taking cash advances can affect your credit score. So if you’re trying to improve your credit score, don’t even think of using your credit card to buy a money order,” adds Reese.
See related: Do bank overdrafts affect your credit score?
Most experts agree buying a money order through a credit card isn’t the ideal option and should be reserved as a last resort. It is more expensive, it will take longer to pay off your credit card balance, and could damage your financial future by adversely impacting your credit score.
It is possible to buy a money order with a credit card, but you shouldn’t. Your best bet is to pay for the money order in some other way rather than using a credit card to make the purchase.