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Guide to Postal Banking

By Jacqueline DeMarco · July 12, 2022 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Guide to Postal Banking

A lot of people may not realize all that they can accomplish when running errands at the post office. Not only can they take care of mailing packages and picking up a fresh book of stamps, but in some cases they may be able to pursue financial services too — similar to what one might find at a bank.

Keep reading to learn more about what postal banking (also known as post office banking) entails. Among the topics covered are:

•   What is postal banking?

•   How does postal banking work?

•   What is the Postal Banking Act?

•   Why are some people opposed to postal banking?

•   What are the pros and cons of postal banking?

•   What are alternatives to postal banking?

What Is Postal Banking?

So, exactly what is postal banking? Postal banking involves a post office providing some level of basic financial services similar to a bank. This is a fairly common practice throughout the world, and it used to be common in the U.S. as well.

Many people are currently advocating to bring this service back to the U.S. It could provide a low-cost solution for America’s large unbanked population (aka people who don’t have any bank accounts, let alone multiple bank accounts).

The services that some postal offices offer when conducting postal banking can include things like cashing checks, paying bills, and issuing small loans.

How Does Postal Banking Work?

As briefly noted earlier, when postal banking is in place, a local post office can legally act like a type of bank branch. It may offer some simple banking services like bill payment processing and check cashing. Some post offices may even have the ability to issue small loans.

(It probably won’t have services like international payments via SWIFT system banking, though, or other less common transactions.)

It’s not that common anymore for U.S. post offices to offer services like these, but some do still sell money orders. If someone wants to safely pay a bill or send money to an individual without a checking account, a money order can really come in handy. It’s also possible to cash money orders at post offices in the U.S.

Some people are lobbying for U.S. post offices to expand their services on the financial front and provide more of the services that banks typically do.

The History of Postal Banking

In the past, postal banking in the U.S. was fairly common. Between 1922 and 1967, the Postal Savings System made it possible to deposit money into government-backed, interest-earning accounts at the post office. Eventually, however, commercial banks began to raise their savings account interest rates. With dwindling consumer interest in the Postal Savings System, the program ended in 1967.

In 2014, interest in postal banking in the U.S. began to surge again, thanks to a white paper released by the U.S. Postal Service Office of Inspector General. This white paper garnered a lot of attention after pointing out that underserved, unbanked households spent more than $2,400 a year on average on fees and interest paid by turning to alternative financial sources. The solution to this expensive problem could be postal banking.

Fast forward to October 2021, and the Postal Service teamed up with the American Postal Workers Union to launch a small pilot postal banking program in four cities. At these post offices, customers can access services like bill payments, cash checking, and ATM withdrawals. It’s too early to say if this pilot program will lead to more widespread access to postal banking.

What Is the Postal Banking Act?

The previously mentioned white paper led to a bill known as the Postal Banking Act being sponsored in 2020 by Sen. Kirsten Gillibrand (D-N.Y.) and co-sponsored by Sen. Bernie Sanders (I-Vt.) and Sen. Jeff Merkley (D-Ore.). This act would allow the U.S. Postal Service to provide some basic financial services. As of 2022, this act has been introduced but has not moved onto the next stage of being passed by the Senate.

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Why Is There Opposition to Postal Banking?

There is some opposition to bringing back postal banking services in the U.S. One key issue is that some believe the U.S. Postal Service isn’t equipped to handle adding banking services. Opponents argue that these days, plenty of banks have low-cost programs that the unbanked can turn to. They may believe that the U.S. Postal Service should focus on optimizing its core offerings instead of diversifying.

Advantages of Postal Banking

To better understand the possible advantages of postal banking, consider these upsides:

Makes Financial Service More Accessible

For those that are unbanked, postal banking can provide a more affordable and accessible option for financial services. As a result, fewer unbanked individuals would need to turn to expensive alternatives like payday loans and check-cashing stores. They would have a simple way to cash checks and possibly a safe way to transfer funds from one account to another.

Low Cost

Again, postal banking can be more affordable than commercial banking. Sure, all financial institutions need to survive, and fees are how banks make money. But, as previously noted, postal banking can provide a much more affordable alternative to payday loans and check-cashing stores.

Convenient

Regardless of whether a person is unbanked or not, it can be very convenient to, say, cash a check while already running errands at the post office.

Disadvantages of Postal Banking

There are also some downsides of postal banking that need to be taken into consideration. These include:

A Big Undertaking

Some opponents of post office banking believe that the U.S. Postal Service isn’t prepared to launch a nationwide postal banking service. They feel it’s too big of an undertaking to contemplate and could interfere with the day-to-day mail service or other tasks.

Commercial Banking Can Be More Robust

Today, many banks and credit unions have low-cost banking programs that can better serve unbanked consumers. They may help them open personal and business bank accounts at reasonable rates.

How Postal Banking May Help Those Who Are Unbanked

As noted above, many believe that postal banking can make financial services much more affordable and accessible to the unbanked community. This community sometimes turns to pricey, predatory payday loan providers and check-cashing stores. They do so because they don’t have access to commercial banking services. Postal banking would cost less for these consumers and could provide them with options.

Future of Postal Banking in the United States

At this point, the future of postal banking in the U.S. is unclear. Time will tell if postal banking can become more common.

Alternatives to Postal Banking

Because it doesn’t appear that U.S. postal banking will be a common option any time soon, let’s look at some other options consumers have for accessing affordable banking services.

Credit Unions

Credit unions are not-for-profit organizations, so they tend to charge lower fees than commercial banks. This can make them a more affordable option. They also tend to offer higher interest rates on savings products and charge fewer fees in general.

Online Banks

Online banks don’t have the costly overhead associated with running bricks-and-mortar banking locations. They often pass these savings along to their customers by charging fewer and/or lower fees and offering higher interest rates on savings accounts. Online banks can be very accessible since transactions can be done via convenient and safe mobile banking.

Banking With SoFi

What is postal banking? To recap, postal banking — also known as post office banking — occurs when post offices are allowed to offer select financial services to consumers. Postal banking is no longer common in the U.S. and it’s unclear if it will come back anytime soon.

If you’re looking for a new bank that could help your money grow faster, you may want to consider SoFi Checking and Savings. When you open a new bank account online with direct deposit, you can sidestep the usual bank fees, and earn a competitive APY.

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FAQ

Why did the postal service stop banking?

The Postal Savings System — a program that made it possible to deposit money into government-backed, interest-earning accounts at the post office (a post office bank account of sorts) — ended in 1967. That’s when commercial banking became more competitive and popular, which contributed to less interest in this program.

Can a post office be a bank?

Currently in the U.S., post offices cannot act as a bank. This may change in the future, thanks to a resurgence in interest in postal banking.

Would postal banking save the post office?

While postal banking may help keep post offices busier and better funded, this isn’t a guarantee. Some opponents to postal banking worry that taking on postal banking may actually be challenging and potentially damaging to the U.S. Postal Service.


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