Banking for All: How the USPS Could Provide Public Banking
June 30, 2022
By Emily DiVito
Our economy functions best when everyone is able to freely participate in it, but our current banking and financial system—privatized and expensive—is a barrier to economic entry for millions of people. To fix this, we need a public banking option that treats money, and the systems through which it moves in the economy, as a public good.
Recent US history provides a model to emulate: the Postal Savings System, a program of no-cost savings accounts issued through the Post Office Department for much of the 20th century. Taking lessons from the Postal Savings System, a modern public banking option could blend free, accessible accounts (such as FedAccounts managed by the Federal Reserve) with retail services provided at post offices.
The current US banking system is costly and exclusive. Nearly 20 percent of US adults have insufficient or no access to a bank account or the services traditional banks provide, such as check cashing or money orders. These unbanked and underbanked people are disproportionately BIPOC and low-income due in part to the legacy of racist banking policies in the US. When they can’t freely or easily access their money through the formal private banking sector, they often turn to extractive nonbank businesses charging exorbitant fees.
Besides being grossly unfair, this creates damaging economic distortions that undermine the US’s ability to respond to economic crises. For example, when the federal government issued checks to stimulate the economy during the pandemic, unbanked and underbanked people had to wait months for a physical check to arrive in the mail—impeding their ability to pay their rent or electric bills—and then had to shell out sky-high fees to have them cashed.
The Postal Savings System’s 50 Year History of Banking for All
But our banking system didn’t always have so many prohibitive access barriers: During much of the 20th century, those without access to traditional banks didn’t need to rely on predatory nonbank businesses. For more than 50 years, the US operated a hugely popular and secure public option through the Postal Service. Created in 1911 before the Fed was founded, the Postal Savings System relied on local banks to manage accounts, and allowed all Americans to make deposits into no-cost savings accounts at post offices. The deposits earned interest, and the original deposit limit of $500 was raised to $2,500 by 1918. Both the interest rate and the deposit cap were initially low to appease private banks, but as the program’s popularity exploded and more money was brought into the traditional banking sector, opposition turned to support.
During the Great Depression, when the public—justifiably—lost faith in private banks, the Postal Savings System was a uniquely safe and reliable alternative. By 1947, more than 4 million people had $3.4 billion in savings in more than 8,000 postal units. However, during the post-WWII economic boom, when interest rates at private banks rose, and after the Federal Deposit Insurance Corporation (FDIC) offered depositors at private banks some guarantee, usage of the Postal Savings System declined and the program was discontinued in 1967.
Despite discontinuation, the successful history of the Postal Savings System has several lessons for a modern revival:
- People trust the USPS to manage a public banking option. Millions of people chose to rely on the Postal Banking System precisely because the USPS—and, by extension, the US federal government—operated it. Today, because of the ubiquitousness of USPS offices—more than 31,000 retail offices in every state, city, and town—and its public service mission, Americans have more trust in the USPS than in any other private brand, and more than in most other public institutions.
- The economically vulnerable benefit the most. The Postal Savings System had minimal access barriers, making it particularly popular among people of color and recent immigrants. In 1915, nearly 72 percent of the total deposits in the system belonged to foreign-born immigrants, though they comprised only 14 percent of the US population at the time. Today, such a program would similarly disproportionately benefit the millions of immigrant, Black and brown, and/or low-income Americans who are distrustful of or excluded from the traditional private banking sector.
- Our government can successfully implement and manage such a system. The US successfully operated the Postal Savings System for more than 50 years—well before technological innovations made banking and financial transactions easier and more efficient. Because the necessary infrastructure—namely, post offices and their staff—is already in place, expanding USPS existing offerings to include certain banking services would be relatively straightforward.
FedAccounts Plus Postal Banking: A Comprehensive Public Banking Option
Without a public banking option, the economic distortions and social inequities that stem from the private banking sector will persist. FedAccounts—which refers to no-cost, no-fee, and no-minimum balance bank accounts managed by the Fed— can be paired with elements of postal banking to tackle these head-on. Such a policy would create a comprehensive public banking option by making FedAccounts available and accessible to all US citizens, residents, and businesses while permitting the post office to offer in-person banking services directly at its storefronts nationwide.
Beyond injecting fundamental accessibility and fairness into our banking system, a FedAccounts postal banking system would outcompete predatory payday lenders and check cashers, enhance US financial stability, improve monetary policy efficacy by allowing the Fed to pass its “interest on reserves” rate directly to individual account holders, and ensure that in-person services—and assistance—are widely available for customers.
FedAccounts would require an act of Congress, but public banking advocates are actively campaigning—with some success—for similar reforms at the state level. In 2021, the California state legislature authorized a feasibility study on a no-fee, no-penalty bank account option known as a CalAccount. The USPS also announced a (very limited) postal banking pilot program to run in four US cities. While these reforms are less exhaustive than a FedAccounts postal banking policy would be, they are indicative of the public and political momentum behind public banking options.
The long history of the popular Postal Savings System is proof of concept for public banking in the US. Money—including who it serves and how it is exchanged—is a public good, but the current system excludes millions from safe and fair banking products and services, and pushes them toward extractive private alternatives. FedAccounts—combined with day-to-day retail at the USPS—would transform the US banking-money system into a shared infrastructure in the public interest.