Purchasing the Money Order

• The buyer goes to an issuing institution--the post office is most common, but banks issue money orders as well--to purchase the money order. The buyer specifies the amount of the money order and the name of the person who will cash it, and pays the amount with a secured and backed method of either cash or credit card. A small fee will be charged to issue the money order, on top of the amount being transferred with the money order itself. The buyer then gives the money order to the payee. The buyer retains the stub with the serial number and amount of the money order, which acts a a receipt.
  
  

Security Features

• The benefit of a money order is its security. Unlike a check, which can be written even without backing funds in the account, a money order is always backed by verified funds. This means it can't "bounce," or be returned for insufficient funds. It also cannot be canceled unless reported lost or stolen.
  
  Since a money order is so secure, though, criminals may try to take advantage of consumers' trust and produce fraudulent versions. U.S. Postal Service money orders, the most common type, have a Benjamin Franklin watermark, and most money orders issued by banks have their own identifying watermarks. You can also call the issuing institution to verify the money order. The serial number and amount of the money order must be provided in order to verify that it has been issued by that institution, and in the stated denomination.
  
  

Cashing the Money Order

• The payee has the option of either depositing the money order into his own bank account or cashing it.
  
  To cash the money order, the payee must take it to the issuing institution. There, he will have to show proof of identity, and the amount, serial number, and name on the money order will be verified in the system as accurate. If accurate, the issuing institution will trade the money order for the cash amount listed. This is the most secure method of receiving payment from a money order.
  
  To deposit a money order, the payee takes it to his normal banking institution. It will be deposited in her account like a check. The funds may be available immediately, or put on hold depending on the bank's rules. The bank then must send the money order to the issuing institution for verification and electronic receipt of the funds. If the money order is not valid, the bank will be notified and the funds will be removed from the payee's account. The bank will then notify the payee.