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Why You Shouldn’t Buy a Money Order with a Credit Card

Wondering if buying a money order with a credit card is a good idea? Find out why experts say to keep your card in your wallet.

By Elliot M. Kass | American Express Credit Intel Freelance Contributor

4 Min Read | January 31, 2020 in Money

 

At-A-Glance

Money orders are a way to make smaller purchases or send someone cash.

They need to be paid for up front, and many issuers will not accept credit cards as a form of payment.

Those that do accept cards treat a money order purchase as a cash advance—so you will likely incur higher fees and begin paying interest immediately.

Therefore, experts generally agree it’s not a good idea to buy a money order with a credit card.

Can you buy a money order with a credit card? And if you can, would it be a smart thing to do? The short answers are “sometimes” and “probably not—it’s a high-cost choice.” But let’s break this down.

 

Even in the digital payments era of mobile apps that transfer money instantly, money orders are still issued by most banks, some retailers, and the Postal Service—and are still broadly accepted as cash. You can use them in lieu of cash or a personal check to buy something or to transfer money to another person.

 

The Advantages of Money Orders

Money orders have certain advantages over cash and checks, which has helped them remain on the scene. For one thing, they’re traceable. When you buy a money order you get a receipt with the date of purchase, the dollar amount, and a banking code that can be used to track it. This makes money orders more secure than most other forms of payment and—unlike cash—if a money order is lost or stolen you might be able to get it replaced.1

 

Money orders differ from cash, checks, or both in four other important ways:

  • Nearly universal acceptance. Money orders are paid for at the time of purchase and—unlike personal checks—the funds are guaranteed.
  • No overdraft concerns. With money orders, there’s no account to overdraw.
  • Cash at a distance. Money orders can be paid for in one place and issued in another. This makes them a very convenient way to send someone funds on short notice—such as your son or daughter who’s traveling or away at school and has an urgent need for cash.
  • No bank account required. Roughly 9 million U.S. households didn’t have a bank account as of 2015, according to the Federal Deposit Insurance Corp.,2 so they can’t write personal checks or use a digital payment service like Zelle.

 

Money Order Disadvantages

Money orders have certain disadvantages as well:

  • Value limit. Most banks set a limit of $1,000 per money order, so they are not well-suited for larger transactions.
  • Fees. Banks and other providers typically charge a small fee to write a money order, usually ranging from $1 to $5.3
  • Require payment guarantee. In general, issuers will only accept a guaranteed form of payment, such as cash—and that’s the rub when it comes to buying a money order with a credit card.

 

The Drawbacks of Buying a Money Order with Credit Card

Credit card providers generally allow you to pay for a money order with a credit card, but they typically treat the transaction as a cash advance rather than a regular purchase. So, given the extra fees and interest charges you’ll accrue, personal finance experts agree that it’s almost never a good idea to use your credit card to buy a money order. Here are the reasons why:

  • It’s expensive. Cash advance fees are usually set at 5% or $10, whichever is greater. So, for a $100 money order, you’d pay $10, and on a $500 money order, you’d pay $25.4
  • You’ll pay a higher interest rate. Most credit cards have a “cash advance APR” that’s higher than the normal purchase APR.
  • There’s no grace period. Unlike most credit card purchases, cash advances usually start accruing interest immediately. That means the amount you owe will continue to grow from the day after you receive the cash advance until the day you’ve paid it all off.
  • You won’t earn rewards. Cash advances don’t earn reward points and don’t get counted towards minimum spends or other incentives.
  • It might be tough to pay off. When you make the minimum payment due on your credit card, the card issuer decides how to allocate it—which may be more towards balances with lower interest rates. So, if you’re carrying a regular purchase balance on your card, your minimum payments won’t go towards paying your cash advance, which will continue to accrue interest at the higher cash-advance rate.
  • It’s hard to do. Very few major merchants allow you to purchase a money order with a credit card. Most others—including the U.S. Postal Service—do not.5 The Post Office, for example, will only accept cash, debit cards, or travelers checks for a money order.6

 

The Takeaway

Money orders are widely available and can be useful alternatives to cash and personal checks. But many issuers don’t let you buy a money order with a credit card. While some do, the cost will likely be higher. So, if you need a money order but have another way to pay for it, you may be better off keeping your credit card in your wallet.

Mike Faden

Elliot Kass is a journalist who has covered global business and technology from New York, London, and San Francisco for more than 30 years.

 

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

The material made available for you on this website, Credit Intel, is for informational purposes only and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.