Can you buy a money order with a credit card?

What is a money order?

Can you buy a money order with a credit card?
Can you buy a money order with a credit card?

A money order is similar to a check, but a lot more secure. It is a form of payment which is effectively guaranteed by the bank or financial institution issuing the money order. In a check payment, it is entirely possible that there aren’t sufficient funds in the account of the payor (person writing the check). Hence, the payee is left with no payment if the check bounces.

To tackle this problem, one can go for a money order. A money order is effectively a prepaid payment. The payor pays to an issuing institution the amount that the money order is going to be worth, plus a processing fee. The financial institution then makes the money order on which there are two signatories. First is you the payor, and second is the payee. After you sign the money order and hand it over to the payee, the payee will sign the money order. Once both the signatures are done, the money order can be cashed by the payee.

Benefits of a money order

There is a lot of flexibility in where one can encash a money order. A payee can do it at any bank or a financial institution of his/her choice. If a money order was obtained from a post office, n a payee can even encash it there.
Money order is also useful for people who may not have a checking account. Apparently, 8% of American households do not have a bank account. Since a money order can be encashed by collecting cash, any person without a bank account can use it to receive payments. From a payor’s perspective, a money order is safer than sending cash in an envelope and there is an element of traceability as well.

Money orders are an alternative way of paying bills as well because you as a payor can rest easy in knowing that there won’t be any failed payment due to personal check bounces or insufficient funds. If either of those two things happens, you will have to re-attempt the bill payment and pay a penalty or late payment fee on top of your bill amount. This can happen especially if you have multiple bills to pay in a short time and you find it hard to keep a track of the balance amount in your account while hurriedly trying to make all those payments.

Money orders do not expire like checks. However, if you wait too long to encash your money order, there could be additional fees and other complications. The exact rules vary from state to state, but it all depends on the state in which you purchased the money order. If a money order is not cashed within 1 to 3 years of issuance, it may get classified as unclaimed or abandoned property. You will be surprised to know that the US Post Office had almost $26 million of pending money orders in 2016.

Where can you buy a money order?

There are many places where you can get a money order. Some of them are:

  • Post offices
  • Local retailers such as grocery stores, supermarkets, pharmacies, and gas stations
  • Banks and Credit Unions

There is one more interesting way to buy a money order: Using your credit or debit card. There are select money order sellers that will allow you to buy a money order using a credit card. Western Union and 7 Eleven are two examples. Places like Walmart and USPS will not allow credit card use for the purchase of a money order. You may also use debit cards to buy a money order but will have to check in advance whether a particular establishment allows such use. You will most probably have to use your debit card or ATM PIN to do a money order transaction.

Things to keep in mind when using your card to buy money orders

While you may be wondering that using a credit card to buy a money order is a convenient and easy way to make payments, you must keep in mind the restrictions on where you can do so. Secondly, you must also understand that the purchase of a money order using a credit card is treated as a cash advance by your credit card company. Hence, you will pay high processing fees and high interest rates.

You might think that you could simply use your credit card to remove cash from the ATM and use that cash to buy a money order. That in effect would be the same thing as a cash advance, hence the same high fees and interest charges. Just to give you some numbers, it is common for a company to charge $14.08 as the fee and a whopping 22.33% APR on cash advances. So, a $200 money order will effectively cost you $12 in fees and interest.

Another thing to note is that transactions involving money order purchases do not count towards rewards and points that make credit cards attractive. So, even though you make transactions while paying high fees and interest, you do not get any benefits of the rewards program. If building rewards points is important to you, then you should first check your credit card’s policy regarding money orders.

When paying your credit card bill at the end of the month, the payment first goes to higher interest balances. So, if you have some regular purchases and a money order purchase on your credit card bill and if you are planning to make only the minimum payment or partial payment, your regular purchases might still remain as outstanding. All the money you pay will go to the money order outstanding balance first.

Check your cash limits on the card first!

Thus, while a money order can be purchased using your credit card, it is generally not a good idea. If you do decide to go ahead and buy a money order using your credit card, first check how much cash advance limit you have on that particular card. Normally, the cash advance limit is lesser than the credit card limit. Sometimes, cash advance limits may be zero as well. So, it is important to be aware of these details in order to avoid unexpected surprises later on.

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