Certified checks and money orders are negotiable financial instruments that are intended to guarantee payment to their recipients also known as payees. Even though money orders and certified checks assure payment, they have several differences that distinguish them from each other. These attributes relate to their security, issuance and value.
Certified checks are guaranteed by banks; specifically the banks of account holders who write the check. To certify a check, a bank official will verify the signature on the check in addition to verifying availability of sufficient funds for the check to clear. Certification of a check means funds are placed on hold so the check will not bounce. Additionally, certified checks verify the check is funded by the true owner of the account from which the funds are drawn.
Money orders are issued by financial institutions or government authorized dealers. Money orders are usually paid for in advance and do not require an account. A large issuer of domestic and international money orders is the United States Postal Service. Issuers of money orders are not necessarily financial institutions. According to the United States Postal Service, in 2009 over 135 million money orders were sold.
The Federal Reserve Bank reports tens of billions of dollars in commercial checks are processed daily as opposed to a daily value in the millions for money orders; this makes fraudulent certified checks statistically more probable. The Uniform Commercial Code (UCC) describes money orders as actually being checks, and there are cases where redemption of money orders has been lawfully rejected due to insufficient funds, Trump Plaza v. Haas being one such case. USPS money orders have several security design features such as watermarks.
Unlike certified checks, money orders have limits on the value they may be issued for. These values vary dependent on the issuer but are often no more than $1000.00 USD. Certified checks may be able to have stop payments placed on them according to chapter four, section 4403 of the Uniform Commercial Code. A stop payment on money orders may not be possible depending on if the money order is a bank or personal money order.
Certified checks are easier to track payment for because they are drawn from a specific account with held funds. Money orders can be more difficult to trace because the issuer of the money order often performs the search, and not the writer of the check. For example, if a money order number is lost, it can require a completed tracking form and a cost of $40 or more to track the financial instrument through Moneygram or Western Union.
- Board of Governors of the Federal Reserve System: Check Services Data
- Cornell University Law School: Negotiable Instruments
- U.S. Department of Justice: 13 GCA Uniform Commercial Code
- Meislik & Meislik Business and Real Estate Law: Trump Plaza Associates v. Haas
- AP Technology: Information about check fraud
- Cornell University Law School: Title 18, Part 1, Chapter 25, Section 500
- Federal Deposit Insurance Corporation: Special Alerts
- GPO Access: Title 39, Part 762, Disbursement Postal Money Orders
- Federal Deposit Insurance Corporation: Special Rules for Money Service Businesses
- Federal Reserve Bank: Compliance with Regulation CC