Table of Contents

The way Postal Banking Works
Postal Banking and the Unbanked
Current Status of Postal Banking Proposals
Frequently Answered 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 28th, 2022
Reviewed by JeFreda R. Brown
Facts checked by Skylar Clarine

Postal banking is where your local post office provides the basics of financial services, similar to a commercial bank. Postal banking is a common practice across the globe and was previously available within the United States. There are some who believe that returning it could be a cost-effective solution for the nation's vast unbanked population.
Important Takeaways

Postal banking is common in other countries , but it isn't seen in the United States for decades.
Many believe that returning it can make low-cost banking available to low-income Americans.
Approximately 7.1 million American households don't have savings or checking accounts.1
Minimum fees and fees for accounts typically stop individuals to open accounts.
Customers who aren't banked depend on merchants for financial services such as bill payment or check cashing, which can be expensive.

What is the process of Postal Banking Works

Postal banking is a type of banking that the local post office also serves as a sort of bank branch. For example, it might offer check cashing processing for bill payments, as well as small loans.

Today, U.S. post offices are not the only ones to offer these services, though they might offer postal money orders as a convenience for people who have to pay a bill or to send money safely to someone but who don't have an account with a bank. Recipients can also cash money orders at the post office.

In the past, post offices weren't as limited. From 1911 until 1967 in the U.S. had a Postal Savings System, where Americans could put their money into government-backed, interest-earning accounts. But as commercial banks raised their interest rates on 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 in which data were available, more than five percent in households (about 7.1 million total) were unbanked. This means that no one in the household is a member of a savings or checking account at a bank or credit union.1 For those who live in these households, banking services such as cashing a check can be prohibitively costly.

According to a study conducted in 2019 by the Federal Deposit Insurance Corp. (FDIC), most unbanked households are low-income and don't have access to a credit or bank union, due to:

Minimum balance requirements for accounts are high. The most commonly cited reason was because the household didn't have enough money to satisfy banks' minimum balance requirements.
Untrustworthiness. Many people stated that they don't trust banks to handle their money.
Fees. Unpredictable (and often excessive) charges like overdraft charges, monthly account fees, and withdrawal fees--prevent some people from opening or keeping accounts.3

In the absence of a checking or savings account, unbanked households turn to services like check-cashing shops and payday loan centers to conduct financial transactions, such as cashing checks or paying for utility bill. In one check-cashing store in California for instance, fees can vary from 1.79% to 14.99 percent of the face value dependent on the kind of check.4

Postal banking advocates say that the system of banking through the post office would not only permit low-income people to cash checks at cheaper costs, but additionally keep them from lenders who are predatory. The ability to visit a post office for small loans could end their reliance on costly alternatives, including payday lenders.5
Current Situation of Postal Banking Proposals

In 2014, the postal banking industry saw renewed interest because of the release of a white paper by the U.S. Postal Service Office of Inspector General. The paper noted that unserved households paid more than $2400 annually for interest and fees from alternative financial sources, and postal banking could cut the cost dramatically.6

The white paper started new conversations about options for those who aren't served Americans. In 2020 Sen. Kirsten Gillibrand (D-N.Y.) was the sponsor of a bill, the Postal Banking Act--that would allow the Postal Service to provide basic financial services. Gillibrand was joined by co-sponsors Sen. Bernie Sanders (I-Vt.) and Sen. Jeff Merkley (D-Ore.).7

In the month of October, 2021, the Postal Service, in partnership with the American Postal Workers Union, began a pilot of a small post-banking program for four towns. At select locations, post offices will offer 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 criticism from both Republican leadership in Congress as well as banks. In a statement, the American Bankers Association (ABA) released a statement that said, "The American Bankers Association has long been a vocal opponent of postal banking, and has also previously stated that it might 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 insists that, more instead of using the Postal Service, the answer to the problem of people who aren't banked should be found in its own branches. "It's easier than ever 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 have low cost and no fees for overdrafts and robust capabilities for transactions like a debit card or prepaid credit card, and online bill pay," the ABA says.8
Is postal banking a thing?

Postal banking is the practice of providing basic banking services at local post offices. This could include things like cashing check as well as bill payment, and even small loans.
What are the advantages of banking by post?

The advocates argue that postal banking could make financial services available to the millions of Americans who aren't currently banked and offer them a lower-cost alternative to costly check-cashing outlets and 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 expand banking services to other services and that many banks now have low-cost programs that could better serve those who are currently not banked.
The Bottom Line

Postal banking is becoming increasingly mentioned as a solution that could be beneficial to families with limited incomes that do not have access to traditional credit unions or banks. Although postal banking has gained some traction in Congress in the past few years, it is a target for bankers. If postal banking does not become widespread, most people will still rely on banks and credit unions (or check-cashing shops and payday loan purveyors) for banking services.
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