Paying credit card bills with money orders

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Today's post is about an issue that I've found causes the occasional misunderstanding in the travel hacking community.

Some banks are (rightly) suspicious of large money order deposits

If you've ever searched Craigslist for a job, you've no doubt come across exciting opportunities in the field of check-kiting. How this scam typically works is that you'll receive a bundle of money orders, which you are instructed to take to your own bank to deposit.

Banks are required to make the funds available within a certain number of days, whether or not the funds have in fact been made available by the bank against which the check is drawn. Once the funds become available to you within the statutory period, you're instructed to wire the funds back to your "employer," deducting a certain percentage to cover your own time and expenses, of course.

When your bank discovers the money orders are fraudulent, they deduct the entire sum from your checking account and hold you responsible for the money.

Besides being aware and wary of the above scam, banks may also be suspicious of customers who conduct large transactions in cash-equivalents like money orders. The larger the bank, the more likely they are to be unwilling to humor customers who insist on depositing vast sums of untraceable funds. That's one reason why one of the most valuable resources any travel hacker can draw on is an accommodating local bank or credit union.

Paying credit cards with money orders is no big deal

I've recited the above well-known facts because, not unreasonably, many people seem to think that the implication is that money orders are inherently suspicious. Nothing could be farther from the truth.

If you have local branches of the banks that issue your credit cards, they will be happy to accept money orders as payments against your credit cards. For example, I have local branches of both Chase and US Bank:

  • In the case of US Bank, I simply hand my credit card and money orders made out to "US Bank" to the teller and ask to make a payment.
  • In the case of Chase, I make the money orders out to "Chase Card Services" (the payee on my Chase credit card bills) and fill out the light blue "payment" slip found at the customer island.

While I've read (occasional, rare) reports of Chase and US Bank checking accounts being closed for making a single large money order deposit, I make tens of thousands of dollars in payments against my credit cards every single month, all of which my clerks are invariably happy to process.

Distinguishing between deposits and payments

The essential thing to remember here is how the bank treats the two kinds of transactions:

  • Deposits into a checking account, made available within the statutory period, can be withdrawn as cash. If money orders turn out to be fraudulent, the bank is responsible for getting the money back from you — money you may no longer have access to.
  • Payments against a credit account, on the other hand, merely reduce the outstanding balance owed. If your money orders turn out the fraudulent, the bank will versus the payment and charge a returned payment fee.

This different is key to understanding why, in general, payments against credit accounts pose a much lower risk to the banks than deposits into demand deposit accounts.

Warnings, cautions, etc., etc.

I make money order payments against my credit card accounts constantly, and my local bank branches are always happy to process them.

But as I'm fond of saying, I'm not a banker, and I'm especially not your banker. If banks in your area have been recently hit by fraudsters, they may be more cautious than necessary about money orders, regardless of the actual risk they incur by processing them.

So start slow, get to know your tellers, make sure they know what they're doing, and build relationships. Then stop worrying, and make any credit card payments you please using money orders.

Guest post: Deposit money orders by smartphone

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Today I'm very pleased to present a guest post on a topic that I think my readers will find as fascinating as I do: depositing money orders using your smartphone, instead of at the counter or using a bank's ATMs. For more like this, check out Doctor of Credit's site here.

List Of Bank Accounts That Allow Deposits Of Money Orders By Smart Phone

by Doctor Of Credit

I asked on Twitter whether I should post a list of bank accounts that allow MO deposits because a lot of people have been asking me for such a list. Originally I was just replying to those e-mails with this information, but FQF suggested that I share it. I asked him if he'd like to host the post and he said yes, so here goes!

We've divided this list into two sections, nationwide banks and local banks. The local bank section also lets you know of any joining requirements. It's important to remember that a lot of these accounts come with fees (most of which are avoidable) so keep that in mind before opening an account. Tip: Leave the receipt attached to your MO to increase the chances of it being accepted. This won't work for all applications, but it should work for most. 

Warnings about MO's & bank accounts:

  • Always keep copies of everything you do and get receipts where possible. This way if something goes wrong you have a paper trail to help rectify the situation.
  • Start small and only do amounts you are comfortable with having frozen, in case of a shut down or dispute.
  • Check that the bank is FDIC insured or has NCUA insurance if it's a credit union.
  • Spread your money orders around different accounts.
  • If you sign up for a new bank account be wary of monthly fees and early account closure fees (most banks charge this if you cancel your account within the first
  • Some banks will do a hard credit pull when you open a new account, all banks will do a ChexSystems inquiry.
  • Too many ChexSystems inquiries in a short time frame can result in a fraud flag or similar being placed on your ChexSystems account. This will make it difficult to get accepted with other banks/lenders that check ChexSystems.
  • It's also a good idea to familiarize yourself with structuring laws to ensure you're not violating them.

Nationwide Banks/Credit Unions

Works

  • Alliant: Very quick to shut down accounts doing any sort of volume. Usually available the same business day, sometimes held for one business day if submitted after 3PM CT.
  • Discover: Funds take two days to post, no known limits although the ToS does state they reserve the right to add these limits in as they like. People often have issues with MoneyGram MO's, Western Union MO's will work fine.

  

  • Simple: Allows 15 photo deposits per month and a maximum of $3,000 per deposit. First five money orders are limited to $2,000. For the first 30 days there is also a 9 day hold applied to MO's, after that they should post instantly.  Recently started sending e-mails to people asking the source & purpose of the money orders. $200 of the money order is released the following business day and the remainder the business day after that. They also tend to exclude people with too many ChexSystems inquiries (generally if you have more than 4 in the past year you'll be denied by Simple).
  • CitiBank: Maximum of $500 per month for the first six months and then $1,500 per month. Application seems to have a lot of trouble dealing with some MO's.
  • Everbank: Funds should be available immediately, no known limits.
  • Schwab: The limit that applies will depend on your check deposit limit. This is different from individual to individual. You can find this limit by navigating to the "Deposit" screen, it'll be under the "Amount" field. Most people will find they either have a $1,000 or $10,000 limit based upon how much funds they are holding with Schwab. Their app has issues with differentiating between the background of a MO and the actual writing on the MO, which means they can't accept all MO's. MoneyGram MO's seem to struggle, whilst WesternUnion MO's work better.
  • PenFed: Funds are made available immediately, no known limits.
  • USAA: Money posts instantly, no known limit ($12,000/month is the maximum I've seen). The application seems to struggle reconigizing some MO's, for best results use a black background and decent lighting. If you're still having issues you can use their Deposit@Home product.
  • Wells Fargo: Daily limit of $1,000 and 30 day limit of $3,000 for the first 180 days, after 180 days this limit is automatically increased to a daily limit of $2,500 and a monthly limit of $5,000. These restrictions are per account, not per person meaning you could use a savings & checking accounts to double these limits. Funds should be released the following business day. A lot of people seem to have issues doing MO deposits with Wells Fargo, this seems to be largely dependent on where the MO was purchase.

Doesn't work

  • Ally
  • Bank of America: Used to work but this was shut down on February 23rd, 2014
  • Barclay Savings Account: ToS specifically states MO's are not allowed with remote deposit.
  • BB&T
  • Bluebird: ToS specifically states no MO's.
  • Capital One 360/ING direct
  • Etrade
  • Fidelity Investments
  • PNC: Some have reported this working, but more reports of it not working.
  • Serve: ToS specifically states no MO's are allowed.
  • SunTrust
  • Vanguard

State Specific Banks/Credit Unions

Works

  • DCU: [Requires membership]
  • LMCU: Ensure the back of the MO is signed, otherwise the app will not recognize it [Must live, work, worship or attend school in Michigan's lower peninsula].
  • Patelco CU [Must live, work, worship or attend school in one of the following California counties: California counties: Alameda, Contra Costa, Marin, Napa, Sacramento, San Francisco, San Mateo, Santa Clara, Solano, or Sonoma].
  • Security Service FCU: Funds available immediately [only available in OH, UT & CO. Other requirements apply].

Doesn't Work

Some banks also have the ability to accept MO's via a mobile application but they charge a fee for doing so. These banks usually have a more feature rich offering with less limits and limitations (and better scanning technology) but the fees makes them a non-feasible option for most people, KeyBank & US Bank are two well known issuers that charge for this service.

As always, your own mileage may vary so if you have any other data points please let us know in the comments - I hope you found this post helpful. 

Will blogs over at Doctor of Credit. If you're going to sign up for a new bank account, you might as well sign up for one that gives you a bonus.

Will compiled this list which shows a complete listing of bank account bonuses. It can be filtered by bonus amount, hard/soft pull, credit card funding, direct deposit requirements, monthly fees, early account termination fees and expiration date. Don't forget to follow him on twitter as well. 

P.S from Will, if you haven't already I'd recommend signing up for a subscription to Free-quent Flyer. He drops a lot of nuggets of wisdom not shared elsewhere and it only costs you a minimum of $2 a month. You can sign up in the side bar.

The curious case of USPS money orders

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Before I get to today's post, I want to say that I am back from Europe, and there is a LOT of travel hacking to catch up on. There's a fair amount of hacking that can be done wherever you are in the world (a post that is in the works), but many techniques require being physically present in the States: CVS hasn't expanded to Europe yet!

Most excitingly, there's a new, game-changing hack that I have now confirmed works and which will double or triple the amount of manufactured spend that even a casual travel hacker is able to generate each month. On Monday I'm going to lay out the basic details of the hack, then provide more information and analysis throughout the week leading up to the long weekend. I hope that all my readers and especially my always very spirited commenters will weigh in with their thoughts on the pros and cons of this new technique. So that new technique is coming Monday.

Today I thought I would share the results of my research into a question that has interested me for almost as long as I've been travel hacking: what's the deal with USPS money orders?

Rewards-Earning Debit Cards

The disappearance of rewards-earning debit cards is a well known and much-observed phenomenon. The story goes that back in the days of the finance bubble, before banks came under stricter regulatory and legislative scrutiny, banks partnered with airlines to issue co-branded debit cards, much as they issue co-branded credit cards today. Merchants were forced to enter into agreements with the credit card networks that required them to accept credit cards and debit cards on equal terms, while paying wildly different amounts depending on the card used by their customers. In other words, while it made a big difference to the merchant whether you were paying with a high-cost, premium card like a Chase Sapphire Preferred or a low-cost non-rewards card, the merchant had to accept them on equal terms. Debit cards were just another piece of that ecosystem.

After the 2007-2008 financial crisis, when there was renewed interest in financial regulation, retailers brought the following problem to the attention of Senator Dick Durbin: while credit cards involve a credit risk to the card issuer (the risk that the customer will default on his debt), debit cards don't have that credit risk, since the money is instantly debited from the customer's bank account. But merchants still had to pay the card issuers not just for the cost of running the card network, but also for the (non-existent) default risk! So Senator Durbin introduced his amendment to the Dodd-Frank financial reform act, which set debit card swipe fees at a low, fixed level. That's the law of the land today.

USPS Money Orders

Like lottery tickets, USPS money orders have always been for sale only by cash or debit card: you have to use cash to buy cash equivalents.  In other words, you can't walk into a post office and buy $1,000 in money orders for $1.60 using a rewards-earning credit card (not that people haven't tried).

However, the existence of rewards-earning debit cards created a problem, which persists today: should a bank award miles for buying a money order, when the cost per mile may even be lower (for example, 0.32 cents per hyper-valuable Alaska Airlines mile using the Bank of America Alaska Airlines debit card) than the price the bank itself pays when it buys those miles from the airline?

This old Ron Lieber article in the Wall Street Journal takes the view that basically, it's the bank's problem. Which it certainly is – until the customer gets caught. Buying and depositing money orders on the scale required to make this technique worth your time is certain to be detected by your debit card issuer. That means you'll need to open additional bank accounts, and diligently make sure that you meet the requirements of each of those accounts to waive monthly account maintenance fees. Moreover, one of my banks takes over a week to clear money order deposits, which makes it almost impossible to turn around the money quickly enough to show a clear profit. I've got better things to do.

PIN-based prepaid debit cards

Naturally, the next solution to this puzzle is to use, instead of using a rewards-earning debit card, a PIN-based prepaid debit card which you've loaded using a rewards-earning credit card. Take the US Bank Visa Buxx card: you can load it with $1,000 at a cost of $5. If you could then unload that $1,000 balance at a cost of $1.60, you'd pay a total of 0.66 cents per dollar of manufactured spend – not bad at all.

Likewise, unloading a MyVanilla Debit card at a cost of $2.10 ($1.60 money order fee, $0.50 transaction fee), would give you a total cost of 0.99 cents per dollar in manufactured spend. A bit on the high side, but terrific if it increases your volume substantially.

Unfortunately, it doesn't work. 

When you buy a USPS money order, not only are you required to use a PIN-based debit card, but the transaction is processed differently than when you buy a box or envelop. The card issuers know what you're doing. The US Bank Visa Buxx card flatly doesn't work: I have never had any success buying USPS money orders in any amount (any commenters with a different experience are of course welcome to chime in on this point).

MyVanilla Debit cards do work, in the sense that they allow you to complete the money order purchase transaction. But when you check your online statement, you'll find that instead of a $0.50 transaction fee, you've been charged the $1.95 cash advance fee, bringing your cost per dollar of manufactured spend from 0.99 cents to 1.13 cents.

And that's everything I know about USPS money orders: they're more expensive than Walmart money orders, you're radically restricted in the kinds of cards you can use, and they arouse suspicion with your card issuer. That isn't to say there's no room for them in anyone's point-earning strategy; that's a decision you obviously have to make for yourself. But I don't bother using them in my own.