When it comes to major purchases, secure transactions are crucial. As a buyer, you want your money to get into the right hands as soon as possible. And as a beneficiary, you want to make sure your payment is legitimate. While personal checks work in some situations, a money order may be a better option when the stakes are high.
Bank transfers allow large payments to be made safely. Learn more about bank drafts, how they work, and their advantages and disadvantages.
A bank draft, also known as a cashier’s check, bank check or bank draft, is a secure payment guaranteed by the issuing bank. When you make a payment using a money order, the bank withdraws the funds from your account and holds them in reserve. The beneficiary can then access these funds by cashing the money order at any bank where they have an account.
Although similar to personal checks, money orders are much more secure because they are guaranteed by the issuing bank. As long as the issuing bank is FDIC insured, a money order cannot bounce.
Money orders are available at banks and credit unions. When you purchase a money order, the bank withdraws the funds from your personal account and holds them in a reserve account.
You will then receive the actual money order, a paper document similar to a check, which you will need to give to the beneficiary. When the beneficiary cashes the money order, they will receive the funds held in reserve at the issuing bank, often within 24 hours.
Bank drafts may incur a small fee, depending on your bank and the type of account you have. Often the fee is around $10.
Once you give a money order to the beneficiary, you may not be able to cancel it. Sometimes the only way to recover the funds is to have the beneficiary cash the money order and return the money to you.
Money orders have no maximum amounts, so they’re useful when you need to make a large purchase, like a house or vehicle. You may also be asked to pay with a money order when you don’t know the beneficiary. Because they are guaranteed by a financial institution, money orders can provide additional assurance that the recipient will receive payment.
Bank drafts can be useful in specific circumstances, but they also have disadvantages. Weigh the following pros and cons before purchasing a money order:
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More secure than other payment methods: Unlike cash, money orders provide a record of payment. And because they’re guaranteed by a bank or credit union, they can’t bounce like a personal check.
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No maximum amount: Many payment options impose limits on the amount of money you can transact. Bank drafts have no such limits.
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The beneficiary’s bank details are not necessary: Unlike wire transfers, you don’t need the recipient’s banking information to send them money. Instead, the bank moves the money to a reserve account until the beneficiary cashes the money order.
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Efficient transaction: Bank transfers typically clear within 24 hours, while other forms of payment may take several days.
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You may have a fee: Depending on where you bank, you may have to pay a fee of around $10 to purchase a money order.
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It can be lost, damaged or stolen: Like cash, money orders involve a physical transaction, making them vulnerable to loss, theft, or even fraud.
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Hard to cancel: Once a money order is issued, it may be difficult or impossible to cancel it.
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Less convenient: Because money orders involve delivering a physical document to the beneficiary, they may not be as convenient as some alternatives, such as wire transfers.
Like a bank order, a money order is a physical document used to make a payment. They are also guaranteed by the institution where you buy them because you pay up front when you buy them.
However, unlike bank orders, money orders have transaction limits. For example, if you send a domestic money order in the US, the limit is $1,000. If you want to send more than that, you must purchase multiple money orders.
Another important difference between bank orders and money orders is where they are purchased and cashed. You can purchase a money order at a bank or credit union, but you can also find them at post offices and certain retail stores.
Money orders and cashier’s checks are very similar. Both are guaranteed by the issuing bank, making them safer alternatives to personal checks. However, these two physical documents contain different information.
With a money order, the bank issues the payment on your behalf, so your personal information appears on the document. However, with a cashier’s check, the bank’s information and the cashier’s signature are on the check.
If you want to make a purchase using a money order, go to your bank or credit union to request one. Assuming you have sufficient funds in your account, the bank will withdraw the payment and place it in a reserve account. Finally, you will receive the physical money order to give it to the beneficiary, who can collect it at their bank.
Depending on where you bank, you may also be able to request a money order online.