We’ve Done It Before! – The U.S. Postal Savings System

Picture this: a large number of bank failures causing a loss of public confidence in banks, banks located in inconvenient places and with limited hours of operation, and banks failing to serve the needs of working people. This might sound like the aftermath of the 2008 financial crisis, but it was also the state of affairs in the early 1900s.

In 1910, Congress responded by creating the Postal Savings System. The System operated from 1911 through 1966, accepting savings deposits guaranteed through the full faith and credit of the United States. The savings accounts earned interest at 2 percent.

Opponents argued that a Postal Savings System would threaten private banks, that banking should be a private, not public, function, and that depositing the savings in the U.S. Treasury would centralize power in Washington. Concessions to the banking industry included limiting the amount that could be invested federally and a cap on interest rates and deposit amounts.

By 1934, postal banks had $1.2 billion in assets or about 10 percent of the entire commercial banking system. During World War II, the postal banks sold $8 billion worth of Defense Savings Stamps to fund the war. After the war, commercial banks began offering higher interest rates and, of course, bank deposits were by this time insured by the Federal Deposit Insurance Corporation (FDIC). Congress abolished the system in 1966.

But the country finds itself once again in need of affordable financial services. “Postal banking was America’s most successful experiment in financial inclusion – a problem we face again today,” writes professor Mehrsa Baradaran. For sources and more information, see the following:

“A Short History of Postal Banking,” Slate, 8/18/14, Mehrsa Baradan.

“Postal Savings Banks: Allowing Immigrants and Workers to Invest Savings,” The Ultimate History Project, Raymond Natter.

“Postal Savings System,” Historian, United States Postal Service, July 2008.