The U.S. postal savings bank program provided limited banking service to an underserved population, kept money in general circulation, and provided the federal government with a cheap source of funds to help finance the public debt.
In 1867, shortly after the end of the U.S. Civil War, Postmaster John Creswell recommended that the federal government allow the post office to set up a program to serve the limited banking and savings needs of rural citizens; the poor, recent immigrants who might already be accustomed to such an arrangement in their home country; children; and hoarders who kept whatever money they possessed out of circulation. The postal savings bank would be modeled on the postal savings banking system of Great Britain, which had initiated such a system in 1861. Postmaster Creswell argued that monies collected via postal savings bank accounts should be used to finance the construction of a postal telegraph network.
Forty years later, on June 25, 1910, President William Howard Taft signed legislation establishing a postal savings bank. This type of bank opened to depositors on January 3, 1911, with one office in each state and U.S. territory. Eventually, the number of post offices authorized to serve as banks increased, though the program did begin slowly. Under the administrative oversight of the postmaster general, the secretary of the treasury, and the U.S. attorney general, the postal savings bank program was designed to avoid competing with state savings banks, while still serving its own clientele.
Some 5 percent of all postal savings deposits were put on reserve in the U.S. Treasury. Some 30 percent of all deposits were invested in government bonds and securities, while 65 percent were to be redeposited in financially stable local and regional banks. Annual deposits were capped at $500. Postal savings bank accounts paid 2 percent annual interest. A depositor had to be at least ten years old to open an account. Deposits from 1 to 99 cents were exchanged for postal savings stamps that were pasted into a booklet. Deposits from $1 to $50 were exchanged for postal savings certificates. Larger deposits or certificates could be exchanged for postal savings bonds paying 2.5 percent annually.
During World War I, the maximum annual deposit increased to $1,000 in interest-earning funds and $1,000 in non-interest-earning funds. In 1918, the annual amount increased to $2,500 total. On June 30, 1919, the postal savings bank had more than 500,000 account holders. The average account held just under $300, for $167 million total on deposit. More than five thousand banks held postal savings funds on redeposit. The postal savings program continued throughout the Great Depression. By 1933, the program held over $1 billion in deposits.
People line up to be the first depositors at this postal bank in New York in 1911.
As a result of many bank foreclosures and the shaky condition of many other financial institutions, the postal administration invested in government securities well in excess of the maximum legal allotment. The government not only allowed such a violation of the postal savings bank program’s charter but even quietly encouraged such a practice as a cheap means to help finance the growing public debt. Some otherwise-stable banks refused postal savings redeposits because the banks did not have funds to cover the interest payments. To foster longer-term savings, the postal savings administration mandated a sixty-day minimum notification period if an investor wished to withdraw funds. Later, depositors were charged a fee to redeem savings certificates issued within the previous thirty days. The economy began to improve during the late 1930’s, and after the United States entered World War II in 1941, the postal bank program thrived. By the end of World War II, the program held more than 4 million active accounts.
Throughout its lifespan, the postal savings bank program was highly decentralized. Local postmasters kept track of local accounts. The program was designed to be self-sustaining, but inadequate accounting methods over such a decentralized program proved unable to wither support or deny the claim to self-sufficiency.
After World War II, widespread banking reforms and a booming economy meant that the previously underserved banking population had many more banking options besides banking at the post office. The number of deposits and the amount of funds on deposit fell steadily throughout the 1950’s and into the early 1960’s. The postal savings bank program ceased to accept new deposits beginning April 25, 1966. On July 1, 1967, $60 million in unclaimed deposits and interest for 600,000 lost or inactive accounts was transferred to the U.S. Treasury. Account holders and their successors were allowed twenty years to come forward with claims from the program. Final disbursements were made on July 13, 1985. All monies remaining from the program reverted to the U.S. Treasury.
Although the United States ended its postal savings program, many countries still continue to follow the practice initially modeled on the British postal bank system. The British postal savings bank program was so successful, eventually serving 25 percent of the population of Great Britain, that it was spun off into a self-standing financial institution, Girobank. Modern countries such as Japan, Germany, Brazil, and Austria still run thriving postal savings bank programs. Developing countries such as China and various countries in Africa continue to run decentralized postal savings programs to serve the rural population and those who control only small amounts of money at any one time.
Cargill, Thomas F., and Naoyuki Yoshino. Postal Savings and Fiscal Investment in Japan: The PSS and the FILP. New York: Oxford University Press, 2003. An examination of the postal savings system in Japan, which remains in operation in the twenty-first century. Kemmerer, Edwin Walter. Postal Savings: An Historical and Critical Study of the Postal Savings Bank System of the United States. Princeton, N.J.: Princeton University Press, 1917. The author examines the postal savings system as it operated in the United States, pointing out its benefits and flaws. Scher, Mark J., and Naoyuki Yoshino, eds. Small Savings Mobilization and Asian Economic Development: The Role of Postal Financial Services. Armonk, N.Y.: M. E. Sharpe, 2004. A collection of essays looking at how postal savings banks, with their many small depositors, have played a role in the economic development of Asia. Taft, William Howard. Political Issues and Outlooks: Speeches Delivered Between August, 1908, and February, 1909. Edited with commentary by David H. Burton. Athens: Ohio University Press, 2001. A collection of speeches containing a speech that touches on the postal banking system. United States Senate Committee on Post Office and Civil Service. Discontinuance of the Postal Savings System. Washington, D.C.: Government Publishing Office, 1966. A government document describing the end of the postal savings system and how the remaining moneys were to be handled.
First Bank of the United States
Second Bank of the United States
Morris Plan banks
U.S. Postal Service
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Supreme Court and banking law