Saturday, June 12, 2010

Checks vs Money Orders

Approximately 17 million Americans are unbanked or do not have a bank account. This numbers includes those who use check cashing retailers, liquors stores to cash checks or use money orders. Many of these Americans have bad credit, little to no savings or just don’t trust the banking industry.

I used to write checks to pay my bills but after electronic check processing became available I was very uneasy using checks to pay my bills. After becoming a victim of identity theft by check in July 2009 I decided to begin paying my bills using money orders. I still use checks to make some payments but will switch to paying bills 100% by money orders until my the industry forces me to do otherwise.

Choosing to pay by money order is a personal choice since I bank with a local credit union. I have been a customer of the credit union for several years and am happy with the service I receive; however, I am very uneasy with someone accessing my checking account electronically. This can increase errors made on your account, increase your chances of being a victim of identity theft. Until more security measures are put in place in the banking industry for consumers I will continue to use money orders.

On average I would spend $3.90 on postage for each check written per month. If I write ten checks I would spend $3.90 per month in postage. If I use money orders to pay my bills the cost of each money order is $.39 so it would cost me $7.80 ($3.90 + $3.90) to pay 10 bills each month. Using money orders have advantages and disadvantages:

1. Reduces my chances of becoming a victim of identity theft by limiting exposure to my checking account.
2. If you frequently use a credit card to pay bills or frequently pay overdraft charges you will save money by using money orders.
3. You may become more disciplined in your spending habits because you will limit your use of your credit card, check card or debit card to make purchases which allow you to spend more money than you have.
4. Is the best option if you do not have a bank account.
5. If you have a checking account your bank may allow you to get a money order for no fee.
6. Purchasing a money order from the US Postal Services provides security protections such as the Ben Franklin images on the left side and the amount of the money order listed in two locations.

1. Obtaining a single money order has limits in some cases up to $1,000 depending on the issuer. To get money order for larger amounts may require an id and will require purchasing multiple money orders.
2. Increases the time to process your payment if the money order is mailed out of state which on average can take anywhere from 2-15 business days to process.
3. Your account cannot be credited immediately once payment is received (because your checking account is not accessed).
4. If you lose your cash your bank will not replace it.
5. You will incur more expenses by using money orders.
6. If will be more difficult to dispute your payment history and you won't have a receipt of payment because the money order stub does not list who the money order was payable to.

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