Is a Money Order Legal Tender?

Money Orders

A money order functions somewhat like a cashier's check. You hand over money to a bank or some other financial institution or to a third party, such as a convenience store, that is handling transactions for a financial institution. The bank issues a certificate that entitles the recipient to collect cash in the amount you paid for the money order. Though the money order is directly convertible to cash, which is legal tender, the money order itself is not legal tender.

"Legal tender" refers to anything creditors are required by law to accept as payment for a debt. Without a legal tender law, a creditor could simply declare that "your money's no good" and keep you in debt indefinitely -- to make you keep paying interest, for example, or to compel you to surrender property to settle your debt. Only governments can decide what is and isn't legal tender. Just because a payment is widely accepted doesn't make it legal tender. "Everyone" might accept your personal check, credit card or money order, but no one is obligated to do so by law. Note also that the "legal tender" designation applies only to payment of debts. No one is required to accept any specific type of payment -- even legal tender -- for the purchase of goods or services.

Title 31, Section 5103 of the U.S. Code defines legal tender. The definition is narrow, extending only to "United States coins and currency." This includes the Federal Reserve notes that in 2011 serve as the country's official paper money, as well as old U.S. currency that might still be floating around. The U.S. Code lists no other payment method as legal tender. Therefore, money orders do not count as legal tender.

The U.S. Postal Service sells money orders for up to $1,000 to give people an alternative to sending cash through the mail. Even though these money orders are essentially sponsored by the federal government, they are not legal tender. Merchants and creditors can decline to accept them just like any other money order.