Cashier’s checks and money orders allow you to make guaranteed payments, where funds are immediately available to the person you’re paying. With a personal check from a regular checking account, the payee has to wait a few days to receive the funds.
Both cashier’s checks and money orders can be purchased at banks, but the latter can be purchased at other institutions as well. While these two payment types are very similar, each has its own advantages and drawbacks.
What is a guaranteed payment?
Generally, people require cashier’s checks or money orders when they want to be sure that the payer has the funds on hand. Personal checks can bounce, credit card payments can be declined or disputed, and few people want to carry around large amounts of cash. That’s where cashier’s checks and money orders come in.
In order to obtain either a cashier’s check or a money order, you need to pay the full amount upfront in cash (or sometimes with a debit card), and the issuer charges a small fee for the service. The cashier’s check or money order is then guaranteed, and can only be redeemed by the payee. Both can be cancelled in case of loss or fraud—just save the receipt.
Common transactions that may require a money order or cashier’s check include:
- Securing a lease
- Purchasing a used car
- Closing on a home purchase
- Any time you need to send money by mail
When to use money orders
Money orders are relatively inexpensive, making them a good choice for smaller transactions. The U.S. Postal Service charges $1.20 for money orders up to $500, and $1.60 up to $1,000. Unlike a cashier’s check, you can buy a money order at the post office and even at many drug stores and convenience stores.
However, many issuers limit the amount of a money order to $1,000. Money orders also can be more vulnerable to loss or theft because the purchaser fills in the “pay to the order of” line by hand. If you lose the money order before filling out that line, anyone could conceivably cash it.
When to use cashier’s checks
Unlike money orders, you can usually only purchase a cashier’s check at a bank or credit union. When you do, the issuer will fill out the “pay to” line, which helps prevent the check from being fraudulently cashed in case of loss. Even if you don’t have an account there, most banks will happily issue you a cashier’s check, though the prices are usually higher than compared to a money order—between $5 and $10.
There is no cap on the dollar amount of cashier’s checks, so they can be used for much larger transactions. If you’re unsure which type of guaranteed payment would be best for a transaction, ask the teller at your bank for advice. They should be able to recommend the best option for you—even if that means sending you to the post office.