Postal Banking: What it Means, How it Works

In postal banking, your local post office offers some basic financial services, much like a commercial bank. Postal banking is common in much of the world and was once available in the United States. Bringing it back could be a low-cost solution for the country’s large unbanked population.

In fact, in 2021, the United States Postal Service (USPS) dipped its feet back into banking services, offering customers in Washington, D.C., Falls Church, Virginia, and the Bronx, New York to cash payroll or business checks (up to $500) on to a debit card.

How Postal Banking Works

With postal banking, the local post office also serves as a sort of bank branch. For example, it might provide check cashing, bill payment processing, and even small loans.

Today, U.S. post offices do not provide all of these services on a large scale, although they may sell postal money orders, 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. Recipients can also cash money orders at a post office location.

Generations ago, post offices weren’t that limited. From 1911 through 1967, the U.S. had a Postal Savings System, where Americans could deposit their money in government-backed, interest-earning accounts. But as commercial banks raised their interest rates on savings accounts, demand for the Postal Savings System declined, and the program came to an end in 1967.

In 2021, the USPS rolled out small deposit-to-card services in certain locations but ideally would like to offer customers the ability to pay bills, deposit and withdraw cash, and send money to other post offices.

Postal Banking and the Unbanked 

In the U.S. in 2019, the most recent year for which figures were available, more than 5% of households (about 7.1 million in all) were unbanked, meaning that no one in the household has a checking or savings account at a bank or credit union. For these households, basic banking services like cashing a check can be prohibitively expensive.

According to a 2019 survey by the Federal Deposit Insurance Corp. (FDIC), most unbanked households are low-income and lack access to a bank or credit union for reasons that include:

• High account minimums. The most commonly cited reason was that the household didn’t have enough money to meet banks’ minimum balance requirements. 
• Lack of trust. Many people said they didn’t trust banks to handle their money. 
• Fees. Unpredictable (and often excessive) fees—such as overdraft fees, monthly account fees, and withdrawal fees—prevent some people from opening or keeping accounts. 

Without access to a checking or savings account, unbanked households turn to services like check-cashing stores and payday loan centers to conduct financial transactions like cashing paychecks and paying utility bills. At one check-cashing chain in California, for example, fees can range from 1.79% to 14.99% of the face amount, depending on the type of check.

Postal banking advocates say that a postal banking system would not only allow low-income individuals to cash checks at cheaper rates but also keep them away from predatory lenders. Being able to go to a post office for small loans could end their reliance on high-cost alternatives, such as payday lenders.

Current Status of Postal Banking Proposals

In 2014, postal banking saw renewed interest thanks to a white paper released by the U.S. Postal Service Office of Inspector General. The paper stated that underserved households spent more than $2,400 a year on average on interest and fees from alternative financial sources, and that postal banking could cut that dramatically.

The white paper started new conversations about options for underserved Americans. In 2020, Sen. Kirsten Gillibrand (D-N.Y.) sponsored a bill—the Postal Banking Act—that would allow the Postal Service to provide basic financial services. She was joined by co-sponsors Sen. Bernie Sanders (I-Vt.) and Sen. Jeff Merkley (D-Ore.).

In Oct. 2021, the Postal Service, in partnership with the American Postal Workers Union, launched a small pilot postal banking program in four cities. At select locations, post offices would provide cash checking services.

The Postal Banking Act and the postal banking pilot program have faced significant opposition from both Republican leadership in Congress and the banking industry. 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 previously noted that it could be perceived as a government-endorsed provider competing with taxpaying banks and would create risks that USPS is ill-suited to manage.”

The ABA maintains that, rather than the Postal Service, the answer to the problem of the unbanked is to be found at its own branches. “It’s easier than ever to open a bank account in this country, including Bank On-certified accounts, which are now available in more than half of all U.S. bank branches, and feature low costs, no overdraft fees, robust transaction capabilities such as a debit or prepaid card, and online bill pay,” the ABA says.

The Bottom Line

Postal banking is increasingly cited as a potential solution for low-income households that don’t have access to traditional banks or credit unions. While postal banking has gained some traction in Congress in recent years, it still faces significant opposition from the banking industry.

Unless postal banking becomes widespread, most people will continue to rely on banks and credit unions (or check-cashing stores and payday loan purveyors) for banking services.