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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?

Financial services that are available at the post offices could help a lot of Americans

By Kat Tretina

Updated April 28, 2022

Reviewed by JeFreda R. Brown

Facts checked by Skylar Clarine

With postal banking, your local post office offers the basic financial services similar to a commercial bank. Postal banking is widespread throughout the world and was once available in the United States. Some advocates are now suggesting that returning it could be a low-cost solution for the country’s large people who are not banked.

Key Takeaways

Postal banking is common in many countries, but hasn’t been seen in United States for decades.

The advocates believe that bringing it back could help make banking services at a low cost available to low-income Americans.

About 7.1 million American households do not have savings or checking accounts.1

Minimum fees and fees for accounts frequently prevent customers in opening new accounts.

Customers who aren’t banked depend on merchants to get basic financial services, such as check cashing or bill payments that can be costly.

How Postal Banking Works

With postal banking, the post office at your local location functions as a bank branch. For example, it might provide check cashing and bill payment processing as well as small loans.

Presently, U.S. post offices do not typically provide these services, although they might offer postal money orders as a convenience for people who need to pay a bill or want to send money safely to someone but who don’t have a checking account. The recipients can also cash their money orders at any post office.

In the past, post offices were not as small. From 1911 until 1967 until 1967, the U.S. had a Postal Savings System, where Americans could deposit their money in savings accounts that were backed by the government and earn interest. However, as commercial banks increased the interest rates for savings accounts, the demand of accounts from the Postal Savings System declined, and the program was shut down in 1967.2

Postal Banking and the Unbanked

The U.S. in 2019, the most recent year for which data were available, more than 5% in households (about 7.1 million overall) were unbanked. This means that no one 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 like cashing a check can be prohibitively costly.

According to a 2019 survey conducted by the Federal Deposit Insurance Corp. (FDIC) The majority of households without a bank account are poor and lack access to a bank or credit union due to reasons such as:

Minimum balance requirements for accounts are high. The most often cited reason was that the household did not have enough money to satisfy banks’ minimum balance requirements.

Untrustworthiness. A lot of people have said that they don’t trust banks with their money.

Fees. Unpredictable (and often excessive) charges like overdraft fees, monthly account fees, and withdrawal fees–prevent some people from opening or maintaining accounts.3

In the absence of a checking or savings bank account unbanked households use services such as check-cashing stores as well as payday loan centers to conduct financial transactions like cashing paychecks and paying utility bills. Check-cashing stores located in California for instance fees can be as high as 1.79% to 14.99% of the face amount dependent on the type of check.4

Postal banking advocates claim that a postal banking system would not only permit low-income people to cash checks at cheaper costs, but additionally keep them from lenders who are predatory. Being able to go to the post office to get small loans could reduce their dependence on high-cost alternatives, such as payday lenders.5

Current Status of Postal Banking Proposals

In 2014, banking on postal mail was a hot topic thanks to the release of a white paper by the U.S. Postal Service Office of Inspector General. The paper stated that underserved households spend more than $2400 per year on interest and other fees from financial institutions other than the Postal Service, and that postal banking could cut the cost dramatically.6

The white paper sparked fresh discussions on options for the under-served Americans. In 2020, Sen. Kirsten Gillibrand (D-N.Y.) sponsored a bill–the Postal Banking Act that would permit for the Postal Service to provide basic financial services. The bill was co-sponsored by Sen. 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 post-banking program for four towns. A few post offices would provide services such as cash-checking, bill payments, along with ATM withdrawals.

Postal Banking Act and the postal banking pilot program have faced significant opposition. Postal Banking Act and the postal banking pilot program have faced major resistance from the Republican leadership in Congress and those in the financial industry. In a statement, the American Bankers Association (ABA) issued a statement saying, “The American Bankers Association has long been a vocal opposition to postal banking and has previously commented that it could be perceived as a government-endorsed bank that competes with tax-paying banks and would create dangers that USPS is not suited to manage.”

The ABA maintains that, rather instead of using the Postal Service, the answer to the issue of people who aren’t banked should be found at its branches. “It’s easier than ever to open a bank account in this country, including Bank On-certified accounts that are now available in more than half of all U.S. bank branches, and feature low costs and no fees for overdrafts and robust capabilities for transactions like a debit card or prepaid card, and online bill payment,” the ABA says.8

How do you define postal banking?

Postal banking refers to providing basic banking services to local post offices. This could include items like cashing checks, bill paying, and even small loans.

What is the advantage of postal banking?

The advocates argue that postal banking could provide financial services for the millions Americans who are not currently banking, giving them a low-cost alternative to expensive check-cashing stores as well as payday loan providers.

What is the argument against postal banking?

A large portion of the U.S. private banking industry believes that the U.S. Postal Service is ill-equipped to include banking in its other services , and that many banks now have low-cost programs that can better serve the unbanked populace.

The Bottom Line

Postal banking is becoming increasingly mentioned as a potential solution for families with limited incomes that aren’t able to access traditional banks or credit unions. Although postal banking has seen some progress in Congress in recent years, it still has a lot of opposition from bankers. If postal banking is not made widely available, most customers will continue to depend on banks and credit unions (or check-cashing stores and payday loan purveyors) for banking services.