Money Order vs. Bank Draft: What’s the Difference

You've probably seen both money orders and bank drafts before but may not have known the difference between the two. Both are similar in that they are guaranteed funds, meaning that the payee will receive the full amount of the money order or bank draft. However, there are some key differences between the two that you should be aware of before choosing which one to use. 

How Money Orders Work 

A money order is a document that is used to send money through the mail. Money orders can be purchased at post offices, Western Union locations, and some grocery stores. When you purchase a money order, you will need to pay for it with cash or a debit card. The issuer will then guarantee that the payee will receive the full amount of the money order. 

One of the benefits of using a money order is that it can be used to send large sums of money. Money orders have a maximum value of $1,000, which is higher than most personal checks. Money orders are also a good option if you don't have a checking account because you can purchase them without one. 

However, there are some drawbacks to using money orders as well. For one, they can be lost or stolen more easily than other types of payment methods because they are physical documents. Additionally, if you need to cancel a money order, it can be difficult to do so. And finally, fees for purchasing and cashing money orders can add up over time. 

How Bank Drafts Work 

A bank draft is similar to a check in that it is a guaranteed form of payment. However, unlike a check, which is drawn on your personal checking account, a bank draft is drawn on the account of the issuing bank itself. This means that there is no risk to you if the check bounces because you are not responsible for covering any insufficient funds. 

Bank drafts are often used in situations where a check would not be accepted. For example, you might use a bank draft to pay your rent or buy a car because the recipient knows that the funds are available and guaranteed. Bank drafts are also useful for making payments in foreign countries because they can be converted into local currency relatively easily.  

Conclusion:  

So, what's the difference between a money order and a bank draft? A money order is a physical document that can be purchased with cash or a debit card and has a maximum value of $1,000. A bank draft is similar to a check but is drawn on the account of the issuing bank instead of your personal checking account. Bank drafts are often used in situations where checks are not accepted and can be converted into foreign currency relatively easily.