The Internet started becoming widely adopted in the late 1990's. E-mail became a way of life within the next few years and today's generation of college freshmen can't actually remember a life without smart phones. ( Meanwhile many of us can only envy the generations that knew a workplace before the Blackberry.)
Despite this, many people still haven't gotten on board with the idea of paying for things digitally. When it comes to real estate, such as paying rent or a mortgage, you still often must have a piece of paper in hand for a range of reasons. So lots of us have a checkbook that floats around the house and gets dredged up once or twice a month when we have to deal with someone who hasn't heard of PoS, Square (SQ) , Venmo or the like.
It might be worth ditching that checkbook altogether.
Any financial instrument that you don't use often is quite simply a liability. You can lose your checkbook or, heaven forbid, have it stolen. You might not want to bother getting one in the first place. (Kind of… why would you?) Instead, consider the option of a cashier's check or money order. They're one-off transfers that often can take the place of a personal check. Both take the money out of your account right away (no wondering how much money you actually have while your landlord dithers), both process quickly and both can usually serve when dealing with someone who's still waiting for Led Zeppelin to hit the studio again.
What Is a Money Order?
You've probably seen signs for money orders around town, especially if you live in a city.
A money order is a payment slip guaranteed by a third party. Essentially it's a certificate that entitles the bearer to get the stated amount of cash. So, for example, Susan sends Bob a $500 money order through the post office. Susan will pay $500 up front, plus a processing fee, and the post office will send Bob a certificate worth $500. He can now collect that money on demand from the post office which was essentially holding the money in escrow.
Benefits of a Money Order
There are a few benefits to a money order:
• Convenience. A money order tends to be easier to get than a cashier's check. You can buy them at banks, post offices, small shops, grocery stores and more. Many supermarkets like Walmart (WMT) will often process money orders, and a global network exists to move money around the world via money order. What's more, a money order is designed for transit. Just about any service which fills out a money order will also send it to the recipient, and many have built a global network for exactly this purpose.
• Some Security. You make a money order out to its recipient just like you do with a personal check. A money order can also be canceled before it is cashed in case it gets lost, something happens or you change your mind.
• Cost. Money orders tend to cost less. On average a money order will cost around $1 - $5 in processing fees, which will come in particularly handy if you have to send a lot of them. The barrier to entry is also lower. You don't need a bank account to issue a money order. You can buy one with cash, making this a better option for someone who either has no accounts or can't access them.
Negatives of a Money Order
Then again, there are some cons:
• Low-limit. Money orders tend to have caps. You typically can't send more than $1,000 via money order, making this difficult for moving large amounts of cash around or paying for big-ticket items like rent.
• Fraud. The ubiquity of money orders also means that these are a popular tool for fraud. Be careful when receiving a money order, and when sending one confirm that the person got the correct amount.
• Impression. It may be unfair, but there it is. Cashier's checks have an image of legitimacy that money orders do not. Depending on who you're dealing with you may want to choose a cashier's check just to send the message that a financial institution stands behind you.
What Is a Cashier's Check?
Then there is the cashier's check.
A cashier's check is a check guaranteed by the bank instead of by a personal account. The difference is that a personal check requires processing time while the bank confirms and withdraws your funds, while a cashier's check has already been funded. So the bank simply pays the value of the note itself.
Benefits of a Cashier's Check
So, for example, Sue goes to the bank and withdraws a $500 cashier's check. She pays the bank $500 by having it debited from her checking account and walks out with a check worth $500. This has several benefits:
• More Security. There are security upsides to a cashier's check too. The bank fills out a pay-to line when the check is issued, meaning that there is no chance of you misplacing a money order slip or of someone filling in a different name. In cases of fraud or mistake you also have more protections. Your bank will generally insure you against error or fraud far more thoroughly than a money order outlet, meaning that in many cases you'll get your money back whereas a money order would simply go through.
• Larger Purchases. A cashier's check has higher limits than a money order. The exact amount depends on your bank. While many banks issue practically unlimited amounts on a cashier's check, they will typically also put a hold on processing any check larger than $5,000 to confirm the transaction.
• Legitimacy. This is the counterpoint to above. With a cashier's check you and the recipient deal with a bank. This has the legitimacy that comes with working with a financial institution, from both assurances that the recipient's money will be there to the image of walking into a Bank of America (BAC) rather than a convenience store. As a result more people are likely to accept a cashier's check than a money order.
Negatives of a Cashier's Check
Then again, a cashier's check isn't always the best idea, because of:
• Loss. In case of error or fraud your bank will almost certainly have your back far more than a money order, and their institutional protections make both less likely. However, in many ways a cashier's check is the same as carrying around a pocket full of cash. If you lose it and don't have the receipt, there's not much your bank can do.
• Convenience. You need to get a cashier's check from your bank, so no picking one up while grabbing a soda. You also may be on your own sending the check. This last is particularly inconvenient when sending money globally. If your buddy needs a quick loan to cover his bar tab in Saigon, Western Union (WU) may be the way to go.
• Cost. Cashier's checks tend to cost about $10 to process. Not a big deal for a single check, this might become important for someone who needs them regularly.
Money Order vs. Cashier's Check: When Should I Use Them?
So, with the differences laid out, which do you choose?
Use a money order if:
• You need to make a small or frequent payment
• You don't have a bank account
• You want to prioritize convenience
• You need to send money overseas
Use a cashier's check if:
• You need to make a large purchase
• You need to make a good impression
• You want to prioritize security
Bottom line? A cashier's check is the way to go for large, infrequent purchases. If you're buying a car with cash, for example, or making a significant investment, the high caps and strong security make this your best bet.
On the other hand, a money order is your go-to for day-to-day transactions. Sending someone $100 or making a routine transfer home are good times to use your local post office.