Manufactured Spend Guide Part 1: Buying Money Orders with Debit Cards
Money Orders are simple instruments that allow you to pay a specified amount of money to a person. They are similar to checks, with the exception that they are paid for upfront and as such are considered a more secure form of payment (money orders can’t “bounce” for insufficient funds like checks). Sometimes institutions will only accepts certified checks or money orders as forms of payment. Money orders can be deposited in your bank checking or savings account the same way as any other check can. They are considered cash-equivalents.
Using Money Orders to Generate Miles
The simple idea with money orders is to buy them using a card that earns miles or points and then deposit the proceeds into a bank account and then use that deposit to replenish the balance of the card you used to purchase them. Of course in an ideal world that would mean that you would be able to buy money orders using credit cards. You could then use whichever miles or points earning credit card you liked best and buy as many money orders as you want. However there are very, very few places that continue to sell money orders with credit cards. If you find one, keep it to yourself and milk it for all you can. However there are several places that sell money orders using debit cards (debit cards have very low fees for the merchant and are much harder to do charge backs, where the buyer challenges the charge and the merchant could lose the entire purchase amount).
In general places that do sell money orders have small charges for them. These typically range from around 50 cents to $1 per money order, and most money orders have a maximum amount of between $500 and $1,000. The most popular location for buying money orders is the MoneyCenters at WalMart. WalMart allows you to buy money orders for up to 70 cents each (some regional variation) with a maximum value of $1,000. If you have a debit card that earns cash back, miles or points then this may be a profitable strategy. There are plenty of other places that sell money orders. Check out your local grocery store’s customer service desk. The US Postal Service also sells money orders at post offices but they code the transactions as cash advances, so most cards don’t reward any points.
Once you have purchased the money order you can make it payable to yourself and deposit it into any bank account. You can usually do this using modern ATM’s either through an envelope deposit or using the automated check deposit feature. Some ATM’s are fussier than others about accepting them, and in some cases you may need to go into your branch to complete a deposit.
Today there are very few debit cards that award any kind of miles or points for debit card purchases. One of the most lucrative – Bank of America’s Alaskan Airlines Debit Card – has just announced it’s own demise. The two main remaining cards are:
- SunTrust Delta debit card. This earns 1 mile per dollar spent, but is generally only available to people within SunTrust’s geographical foot print
- UFB Direct American Airlines card. This earns 1 AA mile per two dollars spent
Using these two cards to buy money orders are pretty easy ways to earn miles. If you shop at WalMart anyway (or check the customer service desk of whichever local grocery store you use to see if they sell “MO’s”) then why not buy a $1,000 money order while there each week to boost your mileage balance? And while these are the two current last standing miles earning debit cards, keep an eye out for local banks and credit unions that often-times have debit cards with rewards or cash back offers that can be maximized using this technique.
However what is really most interesting about the ability to buy money orders with debit card is it is the foundation upon which other more complex but often more rewarding techniques such as using pre-paid debit cards and gift cards is built on. More on those later in the series, but you should basically always be interested in something that can work like a debit card because now you know it can be used to turn funds into cash pretty easily via money order purchases.
Risks of Buying Money Orders with Debit Cards
Things to be aware of when buying money orders and then depositing them in your bank account are:
- Treat money orders as cash. In particular if you lose a money order along with it’s receipt you could have a very hard time getting the money back. Even with the receipt be prepared to be without the money for a good period of time. This becomes more important the higher the volume you do – just thinking about whether or not you’d comfortably stroll around a WalMart car park and then drive around town with several thousand dollars in your pocket. A good tip is to take a pen and make the money orders payable to yourself as soon as you are handed them buy the cashier.
- If you buy money orders using a debit card from one account and simply deposit the same money order right back into that account, it may raise a red flag and you may get that account closed. Again this risk increases with your volume. I probably would not be worried about doing one $1,000 a month in an otherwise normal and actively used account. I would not do $10k a week in the same account. There are certainly no hard and fast rules here, so just stick to common sense.
- If you do this in large volume you run a serious risk of your activities looking like structuring. Most hardcore manufactured spenders write this off as paranoia, but I think the risk is real. When people do large volumes of money orders they often say the best strategy is to have multiple bank accounts to deposit into so that you can “keep under the radar”. This is exactly what structuring is, splitting transactions into smaller amounts to keep under “official radars”. While I am not aware of anyone that has been accused of this, it was one of those risk that is super remote but devastating if it plays out (forget about credit issues, imagine if you have a felony charge for an activity akin to money laundering?) My advice here is two fold. First of all keep very good records. For me that means when I buy money orders I keep the stubs, I keep the receipt from the store I bought them from, and then I keep deposit slips with scans of the money orders from the banks I deposit them too. At least that way you can show where the money came from and went to. But that may not be enough, as even if you are doing nothing wrong if it looks like you are trying to avoid reporting requirements you can be found guilty. So to me the best defense against this is to actually make some deposits that you know are over reporting thresholds. Yes that means you know banks will likely report your deposits, but at least then nobody can say you were actively trying to avoid reporting limits. (Note this is not a risk if your volumes are small, say $1,000 a week or less)
- Be prepared for potential weird issues at checkout. WalMart machines are infamous if the money order printer runs out of paper – be prepared to be there for an hour while they work out how to fix it. Chances of this happening to you are slim if you are an occasional purchaser, but anyone who does any kind of sizable volume will likely run into this issue, so when you go to buy money orders try not to do it when you absolutely need to be somewhere shortly after in case you get stuck there longer than you anticipated.
One final point of note about money orders that I really do like is that you actually have to have money in your account to purchase them. Unlike a credit card where you can spend the money on something you hope you can convert into cash before the payment is due, debit cards require immediately accessible funds to allow a charge. So why on earth would I like this? Well it brings into perspective the liquidity risk highlighted above. If you really, really need the money you are far less likely to use it to buy a money order in the hopes you can deposit it back in your bank before your needs become due. Of course you could borrow money to buy money orders – and I know some people who do just that – but a lot of people would react to that suggestion saying you would have to be crazy to borrow to buy money orders. And yet that is exactly what everyone does when they use their credit card to acquire other cash convertibles or equivalents.
Money Orders are a very simple way to generate miles. While the opportunities available for direct purchases of money orders are relatively limited, the trick of using debit cards to buy money orders is useful for other techniques discussed later in the series.
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