Postal Savings System: Background History
A postal savings bank and system was first recommended in 1871 by the Postmaster General at the time, John A. J. Creswell to emulate the postal savings system that had been set up in Great Britain in 1861. The idea was constantly raised then dropped by successive governments but the nationwide financial Panic of 1907, and the subsequent bank runs, shook the public's trust of private banks. This economic disaster provided the impetus to open the debate again and President Roosevelt responded by advocating a system to use post offices to fulfill the needs of small savers and local communities. The idea was well received (except by bankers) and led Congress to pass the 1910 Postal Savings Depository Act during the Taft administration.
Postal Savings System: What was the purpose of the Postal Savings System?
The Postal Savings Depository Act established the system to provide "postal savings depositories for depositing savings at interest, with the security of the Government for repayment thereof, and for other purposes."
Postal Savings System: Why was the Postal Savings System established?
The reasons that the Postal Savings System was established during the Taft administration were:
To provide a safe and convenient place for Americans to save their money, instilling a sense of trust and security in savers as it was backed by the government, not a private bank
To persuade people to place their money in a safe place, rather than hiding it under their beds
To encourage prudence and thrift amongst American workers and their children
Postal Savings System: Designed to appeal to Immigrants
The nation had seen a massive rise in immigration. During the period between 1901 and 1910, a total of 8,795,386 immigrants had arrived in the United States. Many of the newcomers were familiar with postal savings systems in their home countries and politicians believed that they would be happy to use a similar savings system in the United States. This turned out to be true, as 60% of the initial depositors were foreign born.
Postal Savings System: The Banks
Many bankers saw the Postal Savings System as competition but the government responded to ensure the Postal Service System would pose no competition for banks.
The plan was to introduce a limited number of depositories for a trial period and extend the number over time to serve small, rural communities where few, or no private banks, had previously existed
To further placate the banking industry's concerns legislators built in a cap on deposits and relatively low interest rates
Postal Savings System: Distribution of Funds
The 1910 Postal Savings Depository law specified the distribution of funds in the system:
The law required that the Department distributed deposits among a 5% reserve in the U.S. Treasury with no more than 30% in government bonds and securities
The majority of the funds were to be re-deposited with local banks where it earned 2.5% interest
Postal Savings System: Phased Implementation
The Postal Savings System had to be self-sustaining. The government planned to adopt a cautious approach when implementing the plan and a phased system of implementation was therefore established. The Post Office Department initiated the system in a trial period at 46 depositories, opening one in each state and territory on January 3, 1911. The number gradually increased over time to a peak number of 12, 000 postal savings banks. The system reached its peak in 1947 when it held almost $3.4 billion in deposits, with more than 4 million depositors.
Postal Savings System: Administration
It was crucial that the Postal Savings System was seen as readily available, dependable and reliable. The administration of the system was therefore headed by a board of trustees consisting of:
The Postmaster General (Frank H. Hitchcock - 1909 to1913)
The Secretary of the Treasury (Franklin MacVeagh -1909 to1913)
The Attorney General (George W. Wickersham -1909 to1913)
Postal Savings System: Deposit Limits
The phased implementation of the Postal Savings System imposed deposit limits:
Only one account was allowed per person and the age limit for opening a Postal Savings account was ten years of age.
In 1910 the maximum deposit limit was $500
It was raised in 1916 to $1,000 for an interest-bearing balance account plus $1000 non-interest earning balance
In 1918 the deposit limit was raised to $2,500
Postal Savings System: Proof of Deposits
The Postal Savings System issued certificates of deposit in denominations of $1, $2, $5, $10, $20, $50, and $100 and paid 2% interest per year on deposits. The initial minimum deposit was $1. The minimum deposit was later dropped to under $1. The proof of these small deposits were postal savings stamps that were initially in denominations of 10 cents, 25 cents and 50 cents. The savers would attach the stamps to a savings card which could eventually be redeemed in the form of a savings certificate or in cash.