Table of Contents
What is the process of Postal Banking Works
Postal Banking and the Unbanked
Current Status of Postal Banking Proposals
Frequently Asked Questions
The Bottom Line
Personal Finance Banking
What is postal banking?
The availability of financial services at the post offices could assist many Americans
By Kat Tretina
Updated April 28th, 2022
Reviewed by JeFreda R. Brown
The factual information is verified by Skylar Clarine
In postal banking, your local post office offers the basic financial services similar to a commercial bank. Postal banking is common across the globe and was previously available in the United States. Some advocates are now suggesting that the return of this service could be a low-cost solution for the nation’s vast non-banked population.
Key Takeaways
Postal banking is commonplace in other countries but isn’t seen in the United States for decades.
The advocates believe that bringing it back can make low-cost banking accessible to people with lower incomes Americans.
Around 7.1 millions American households do not have savings or checking accounts.1
Minimum fees and fees for accounts often stop individuals to open accounts.
Unbanked individuals rely on retailers to get basic financial services, such as bill payment or check cashing that can be costly.
How Postal Banking Works
With postal banking, the post office in your area serves as a sort of bank branch. It could, for instance, provide cash for checks processing for bill payments, and even small loans.
Today, U.S. post offices don’t typically offer the services mentioned above, but they may offer postal money orders, a convenience for people who must pay a bill or to transfer money securely to someone, but do not have an account with a bank. Recipients can also cash money orders at a post office location.
In the past, post offices were not as restricted. From 1911 until 1967, from 1911 to 1967, the U.S. had a Postal Savings System, where Americans could save their money in government-backed, interest-earning accounts. However, as commercial banks increased the interest rates for savings accounts, demand of Postal Savings System decreased. Postal Savings System declined, and the program ended in 1967.2
Postal Banking and the Unbanked
In the U.S. in 2019, the most recent year for which figures were available, more than 5% in households (about 7.1 million total) were unbanked. This means that nobody in the household is a member of a savings or checking account at a financial institution or credit union.1 For these households, basic banking services such as cashing a check can be prohibitively expensive.
According to a survey conducted in 2019 by the Federal Deposit Insurance Corp. (FDIC) The majority of households without a bank account are poor and do not have access to a credit or bank union for reasons that include:
Minimum balance requirements for accounts are high. The most often cited reason is that the household did not have enough money to meet banks’ minimum balance requirements.
Lack of trust. Many people stated that they don’t trust banks with their money.
Fees. Unpredictable (and often exorbitant) charges, such as overdraft fees and monthly account fees and withdrawal charges–deter some customers from opening or maintaining accounts.3
In the absence of a checking or savings accounts, households that are not banked are forced to use check-cashing shops as well as payday loan centers to conduct financial transactions, such as cashing checks as well as paying bills for utilities. In one check-cashing store in California For instance the fees range from 1.79% to 14.99% of the amount on the check dependent on the type of check.4
Postal banking advocates claim that the system of banking through the post office would not only permit low-income people to cash checks at cheaper costs, but also keep them away from predatory lenders. The possibility of going to an office in the post for small loans could end their reliance on costly alternatives, like payday lenders.5
Current Situation of Postal Banking Proposals
In 2014, banking on postal mail saw renewed interest due to an unpublished white paper from the U.S. Postal Service Office of Inspector General. The paper noted that unserved households spent more than $2,400 a year on average on interest and fees from alternative financial sources, and that postal banking could reduce that dramatically.6
The white paper started discussions about alternatives for underserved Americans. In 2020 the senator. Kirsten Gillibrand (D-N.Y.) was the sponsor of a bill, the Postal Banking Act, which would allow for the Postal Service to provide basic financial services. Gillibrand was joined by co-sponsors senators. Bernie Sanders (I-Vt.) and Sen. Jeff Merkley (D-Ore.).7
In October 2021, the Postal Service, in partnership with the American Postal Workers Union, launched a small pilot postal banking program in four cities. In select areas, postal offices will provide services like cash checking, bill payments, as well as ATM withdrawals.
It is known that the Postal Banking Act and the postal banking pilot program have come under significant criticism from both Republican the leadership of Congress as well as banks. In a statement, the American Bankers Association (ABA) released a statement that said, «The American Bankers Association has been vocal for a long time as an opposition to postal banking and has previously noted that it may be viewed as a government-backed provider competing with taxpaying banks, and could pose risk that USPS isn’t suited to handle.»
The ABA maintains that, rather instead of it being the Postal Service, the answer to the issue of people who aren’t banked should be found at its own branches. «It’s much easier than ever before to create a bank account in this country, with Bank On-certified accounts that are now in operation in more than half of all U.S. bank branches, and come with low fees with no overdraft charges and robust capabilities for transactions such as a debit or prepaid credit card, and bill pay online,» the ABA says.8
How do you define postal banking?
Postal banking is the practice of providing basic banking services at Post offices in the area. That might include items like cashing checks as well as bill payment, and even small loans.
What are the advantages of banking via postal mail?
Advocates say that postal banking can offer financial services for the millions Americans who aren’t currently banked, giving them a low-cost alternative to costly check-cashing shops as well as payday loan providers.
What is the argument against postal banking?
The U.S. private banking industry maintains they believe that the U.S. Postal Service is ill-equipped to include banking in its other services and that many banks have programs at a low cost which could be better suited to the currently unbanked population.
The Bottom Line
Postal banking is becoming increasingly mentioned as a solution that could be beneficial to low-income households that don’t have access to traditional credit unions or banks. While postal banking has seen some progress in Congress in the past few years, it faces significant opposition from the banking industry. Unless postal banking becomes widespread the majority of people will still rely on credit unions and banks (or check-cashing stores and payday loan purveyors) for banking services.
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