To avoid confusion, it is important to know the differences between money orders, bank checks, and cashier’s checks, and of course, how and when to use them.
For some reason, the time has changed. Unlike before, money orders, bank checks, and cashier’s checks are not that common now. For sure, at least once in your life, you are likely to deal with any or all of them, but not as often as they used to be.
Nevertheless, to ensure you know what to do once the encounter happens, it is best to know the difference between money orders, bank checks, and cashier’s checks. At least, once you encounter any of these, you know what to do with them, right?
So, to help you out, we are particularly going to answer the following commonly asked questions regarding these products:
- What are Money Orders, Bank Checks, and Cashier’s Checks?
- How to Purchase Money Orders, Bank Checks, and Cashier’s Checks?
- When to Use Money Orders, Bank Checks, and Cashier’s Checks?
- When to Accept Money Orders or Cashier’s Checks?
- How to Avoid Scams?
WHAT ARE MONEY ORDERS, BANK CHECKS, AND CASHIER’S CHECKS?
More than anything else, it is first and foremost important to know the definition of each product to be able to differentiate one from the other.
So, with that said, here are what money orders, bank checks, and cashier’s checks are all about:
According to the Corporate Finance Institute (CFI), a money order is defined as “a guaranteed form of payment for a specified amount that two parties can use as a form of payment in exchange for a given product or service.”
Furthermore, it says that to be able to obtain a money order, “an entity must pay the amount that’s been agreed upon for a good or service.”
It is the issuers’ responsibility to produce the official money order document. The document can be handed to the other party or parties (whichever is applicable) involved in the transaction.
Once the other party or parties have received the document, it can then be replaced or exchanged for a deposit in the holder’s bank account.
The money order concept has been around since the late 18th century Britain. Initially, when it was launched, the concept was not successful. It was thought that the system’s high fees, as well as other traditional payment methods like checks and cash, was more appealing to people.
However, when the payment was sold off to a private buyer, the fees were lowered and as they say it, the rest is history.
Although the money order concept was appealing and profitable, just like any other product in the market, it’s not perfect. It comes with a few disadvantages as well.
One is that the payment system found that there was limited acceptance and usage in the brokerage as well as in insurance industries because of money laundering concerns.
This concern was eventually addressed though. Thanks to legislation like the U.S. Bank Secretary Act as well as the USA Patriot Act that required money orders to be subject to “more regulatory processing” than checks.
More so, to make using money orders safer, the U.S. government also capped the maximum transaction amount at $1,000 for domestic orders, while for international orders, the maximum amount allowed at $700.
Bank checks are probably the most common among the three products. It’s commonly used by a lot of people on a day-to-day basis.
A bank check, also known as a certified bank check refers to a check that is issued and guaranteed by a bank.
Once a checking account holder obtains a bank check, the bank automatically removes or subtracts the specific amount of money from the payer’s checking account, and then moves it to another or a separate account (the receiver’s account).
In the country, in almost all cases, all individuals need to have a checking account with their preferred bank to be able to use a bank check.
Basically, once the check is deposited or cashed by the receiver, the funds are withdrawn from the payer’s account.
Since the money is directly taken from the payer’s account, and set aside for the recipient, it is unlikely for a bank check to bounce — unless of course, there are not enough funds.
Having a bank check is quite convenient and safe especially when dealing with a big amount of money. Businesses are more likely to use one as compared to individuals — again, for the reason of paying big amounts of money.
A lot of people often confuse a bank check with a cashier’s check, which is pretty much understandable given the fact that they are alike.
But to be specific, let us define what a cashier’s check really is.
Cashier checks are defined as a secure way to make big payments. Technically, the check itself is written by a financial institution, which could either be a bank or a credit union, against its own funds.
When a person requests a cashier’s check from his or her bank or credit union, the money is automatically moved out of the person’s account as well as into the bank’s account. The bank representative will then sign it over to a named party.
When purchasing cashier’s checks, you need to pay for the full face value of the check. Furthermore, you will also be charged for a small premium for the service.
As mentioned, a cashier’s check is usually associated with large payments that guarantee extra protection. Some of the cases or scenarios that people use cashier’s checks include:
- Paying closing costs for a mortgage
- Buying a car or a boat
- Purchasing a piece of land or any property for that matter
- Making down payment for a house or a car
In short, a cashier’s check is not ideal for everyday use or everyday spending. It’s best used in making large payments or financial transactions.
To put it simply, check out the below video by Rocking Finance. He basically presents what makes one different from the other:
HOW TO PURCHASE MONEY ORDERS, BANK CHECKS, AND CASHIER’S CHECKS?
So, by now you already know what money orders, bank checks, and cashier’s checks are all about. Thus, this time around, we are going to discuss how to actually purchase each of them.
As a customer, it is also important to know the process of purchasing money orders, bank checks, and/or cashier’s checks. This way, you do not get overwhelmed or you avoid catching yourself not knowing what to actually do.
So, here is the process on how to purchase these products:
As mentioned, a money order is a paper document that is similar to checks. It’s used as a form of payment, but not as popular as checks.
Generally speaking, money orders can be bought from your bank or credit union.
However, you can also buy money orders from other institutions like the post office; supermarkets, and convenience stores; check cashing, money transfer, and payday loan stores; and/or other businesses that offer them.
When purchasing a money order, the bank or any financial institution for that matter will either accept cash or direct debit your account.
In most cases, banks charge a fee for money orders. However, they may only waive the fee if you win certain types of accounts with them. It’s like a privilege they give to their customers for specific bank account types.
More so, when buying money orders, the buyer has to have the amount of the money order, as well as the name of the payee. As much as possible avoid making the money order out to cash. Also, make sure to always keep the receipt for future reference.
Just so you know, the maximum amount allowed for money orders is $1,000 only.
Unlike cashier’s checks, bank checks can be used on a day-to-day basis.
However, to be able to write checks, one must have a stack of bank checks. Makes sense, right?
Normally, your first set of checks comes from the bank once you open an account. Some, if not most, banks offer the first stack of blank checks for free.
But, what happens once you have already used them all up?
Well, it’s easy and simple. All you need to do is order more personal checks for a certain fee, print your own checks, and then, get fancy with new bank checks!
By the way, when ordering checks, you have three options to choose from. These are:
Ordering checks from a catalog or online
Print your own checks
Call your bank and order check refills directly from them
To be honest, we highly recommend doing the last option every time. While all of them require a fee, we just find ordering or purchasing from the bank easier, more convenient, and safer.
Getting your stack of checks from the bank means you do not have to figure out where your account, as well as routing number, are. So, if you want less hassle and work, opt for the last one.
Just like money orders, cashier’s checks can also be purchased from your bank or credit union. Normally, it will cost you around $8 for the purchase.
For those who opt to get it from the bank, you got to first and foremost, ask the requirements to order a check. Technically though, you may either need funds available in your account, or you need to bring a few cash to the bank to buy checks.
There are actually two ways to purchase cashier’s checks. You may buy in-person, which means you walk into most brick-and-mortar banks to get a check issued, or you may opt to buy it online. Online banks and other well-known banks allow you to request a cashier’s check online. When ordering it online, the bank will send it to you via mail, which means you need to wait until it gets to your mailbox.
For your reference, the bank will surely ask a few details before issuing a check. These details include:
- Check Amount
- Payee’s Name
- Other Details (like “memo,” notes, reference number, etc.)
- Identification Card (such as driver’s license, passport, or other government-issued ID)
- Payment for Fees (as mentioned, cashier’s checks usually costs around $8 to $10 depending on the bank)
Meanwhile, for those opting to get a cashier’s check from credit unions, you basically need to bring an ID as well as the information of your “home” credit union. Make sure to call ahead your preferred credit union to know if they provide cashier’s checks.
The good thing about credit unions is that they issuer cashier’s checks to those who do not have a bank account. Although some institutions only issue checks for customers so better check first.
WHEN TO USE MONEY ORDERS, BANK CHECKS, AND CASHIER’S CHECKS?
You already know what money orders, bank checks, and cashier’s checks are all about, and how to purchase them. So, what’s next?
Of course, knowing when to actually use each of them. Yes, there is a right time to use a money order, a bank check, and/or a cashier’s check.
So, here it goes —
A money order is ideal to use when you are going to make large purchases and carrying cash is too risky.
It is also ideal when your debit card or your personal check won’t be accepted by the receiver.
More so, a money order is the best choice when purchasing a car or any large purchase for that matter and the amount is more than the limit put in place by your bank of choice.
Furthermore, money orders are idea for people who:
- Want a safer alternative to cash
- Do not have a bank account
- Want to keep his or her anonymity
- Encounter sellers who require such mode of payment
- Want to send funds abroad in a more convenient way
Bank checks or also known as personal checks are useful up to this day. There are a couple of transactions that still require checks.
One example is if you are renting a space, landlords usually prefer tenants to pay rent with checks (some would require post-dated checks even). There are also small businesses that do not accept debit or credit card, but checks.
Checks are also best if you want to stay disciplined with regards to your spending habits. By issuing checks, you get to take note of your expenses.
Generally, bank checks do have a lot of uses. In fact, it can be used on a day-to-day basis.
People who feel unsafe bringing cash in paying purchases may opt to bring issue checks instead.
Unlike money orders, bank checks can be issued regardless of how big or small the amount is.
A cashier’s check has similarities with a money order. One similarity is — you use it in making large purchases.
A cashier’s check is usually used by people who are making down payment on a house they are buying, or a car or any property that costs a lot and bringing cash is too risky.
For banks to issue a cashier’s check to a customer, the customer has to have a bank account with them.
Historically, a cashier’s check is considered as a safer payment method as compared to a personal or bank check since funds are guaranteed.
Furthermore, they are considered safer for you since they do not contain your account number, which is visible in personal checks.
WHEN TO ACCEPT MONEY ORDERS, BANK CHECKS, OR CASHIER’S CHECKS?
Based on the information we have already provided you, while all three have differences, they do have similarities as well.
One obvious similarity is that money order, bank check, or a cashier’s check can be used when making payments that are too much to pay on a cash basis. Needless to say, all three provides safety and security for the issuer.
But what about as a recipient? When it is best to accept money order, bank check, or cashier’s check?
Just the same, it is best to opt for either of the three when you are selling a large item to a private seller.
By opting for a money order, bank or cashier’s check, you will help protect you because funds are guaranteed as long as the money order or the checks are legit and that there are no stop payments put on the checks.
By the way, as an issuer of a money order or cashier’s check, please keep in mind that once you have already purchased them, it would be very difficult to cancel. So, imagine if you on the receiver’s end. That’s total security in there, right?
HOW TO AVOID SCAMS?
You are probably wondering why we have to tackle scams. Well, unfortunately, there is a wide range of scams circulating that use either money orders or checks particularly cashier’s checks.
The scams usually involve giving you a check for deposit into your account with an instruction to withdraw the funds, and then, send a part or all of the money to someone else.
What happens next is that the original money order or cashier’s check won’t clear, and you are left out of the money.
So, to avoid scams, make sure to only transact with trusted people or entities. Do not just deal with anyone. Do your research first before issuing a money order, a bank check, or a cashier’s check.
Do not be a scam victim. Do your part.
FINAL THOUGHTS ON MONEY ORDERS, BANK CHECKS, AND CASHIER’S CHECKS
In this day and age, maybe some of you will find it odd to still be issuing money orders and checks. With everything going digital and paperless, it feels like it’s outdated.
But let’s be realistic, money orders and checks are very helpful. We don’t know with you, but, ultimately, this mode of payment for purchases or whatever transactions is very convenient and safe.
So, have you decided which one to use yet?