Rememberingthe AVINGS TAL S SYSTE POS M

20 The Postal Record December 2015 ith advocates that operated on “bankers’ hours,” include Sen. Elizabeth meaning they were not open when Warren (D-MA) and workers could access them, and were Wpresidential candidate Sen. Bernie reserved for cities, especially in the Sanders (I-VT), the concept of postal Northeast. (In 1909, more than half of banking has emerged as a way to ease all the banks in the country were in the financial burdens faced by the New York and Massachusetts.) With poorest Americans. But critics have stations in every town and city, the scoffed at the idea. “How could postal seemed the ideal institution employees run a ?” they ask. for the federal government to create a Though little remembered, there was banking network. a time when the U.S. Post Office was the The U.S. banking industry balked at safest bank in the country, helping to the idea of competing with keep the entire financial industry afloat. the federal government, For millions of Americans, the idea of and small-government postal workers running a bank is what advocates believed there convinced them to do any banking at all. was no place for the As postal banking returns to the federal government in the national stage, The Postal Record takes industry. This was at a time a look back at the United States Postal when there was no insur- Savings System (USPSS). ance for depositors, mean- ing that if a bank went International idea out of business, peoples’ Postal banking started in Great savings went with it. It was Britain, which established it in 1861. also during a time when Geared toward the lower classes and of- the federal government fering an interest rate of only 2 percent, had few tools to put money it became such a success that one con- into circulation during a temporary called it “the greatest boon recession or depression as ever conferred on the working classes banks would hoard funds Opposite page: Boy Scouts participate in the of this country.” From Great Britain, and not them out, lengthening the Postal Savings System in 1913. postal banking spread throughout the recession or depression. Above: The first day at the postal bank in New British Empire—to New Zealand in 1876, To reduce opposition, Creswell York Canada in 1868, Australia in 1871—and reduced the proposed interest rate to then to almost every Western country a modest 2.5 percent (well below what and Japan by the end of the century. could be earned at private banks) and In 1871, John Creswell, appointed limited deposits to $300 annually or by President Ulysses S. Grant, became $1,000 total. President Grant took the first postmaster to propose a postal the idea to the people in his annual bank. Creswell said that the bank- message to the country at the end ing profits would be used to pay for a of 1873: “Every laborer…receives his telegraph system. His proposal was wages, and, for want of savings banks, modeled directly after Great Britain’s the greater part of wages is carried in banking system, though with a 4 the pocket or hoarded until required percent interest rate, with the idea of for use…. I urge favorable action by bringing banking to the working poor. Congress on the important recommen- There was a feeling that workers dations of the Postmaster-General for would be more trusting of a public the establishment of the United States institution, and that the many immi- postal savings depositories.” grants among the working class would Congress refused to act on Grant’s already have trust in a postal bank, as request or that of any subsequent those institutions often existed in the president for the next 40 years, even as countries they had come from. Most 72 bills were proposed.

January 2016 The Postal Record 21 William Jennings Bryan preferred federal deposit insurance. Taft won the election, and his Re- publican majority in Congress passed the bill on June 22, 1910, along partisan lines. It was signed into law on June 25. A board of trustees consisting of the postmaster general, the secretary of the Treasury and the attorney general handled the administration of the system. The Post Office Department initiated the system in a trial period at 48 depositories, opening one per each state and territory on Jan. 3, 1911. The law set the interest at a low 2 The Panic of 1907 percent, and the postal banks couldn’t Pivotal panic pay interest on any account held less In mid-October 1907, a financial crisis than a year. Also, 95 percent of the hit the New York Stock Exchange, with deposits were to remain in the local stock prices falling 50 percent from their communities in established banks, peak the previous year. Panic ensued, where they earned 2.5 percent interest with people attempting to withdraw (with the half-percent difference used their money from the banks, causing to pay for the operation of the system). many state and local Monthly deposit caps were set at $100 banks, as well as busi- with a total savings cap of $500. nesses, to go under. The initial minimum deposit was one Those banks and individ- dollar, though customers could pur- uals who did have cur- chase a 10-cent postal savings card and rency refused to lend it, 10-cent postal savings stamps to fill it. exacerbating the panic. When the card’s value reached a dollar, It wasn’t until financier it could be used to open or be added to J. P. Morgan pledged the an account, or redeemed for cash. backing of large sums of Unlike in other countries, each post his own money that the office was treated as a unique bank, panic subsided. so a depositor couldn’t withdraw his Out of this panic came calls for greater federal or her money from a separate station. control of currency. The Additionally, letter carriers could not postmaster general of the handle deposits or withdrawals. time, George V. L. Meyer, Thus was the United States Postal A postal savings depository window renewed calls for a postal Savings System (USPSS) born. banking system, but with a twist: Where- as previous efforts had included the idea An immediate success that deposits in the postal system would Within the first year, $20 million was go to the U.S. Treasury, Meyer suggested deposited in postal banks, and by the end that deposits go to local banks. The idea of 1913, the total had reached $33 million. that the currency would not end up in The New York Times reported that the the banks in the Northeast helped thrust postal banks were nearly self-sustaining the idea into the presidential election of and that, despite the private bankers’ 1908. Republican William Howard Taft belief that those deposits would be from backed postal banking, while Democrat withdrawals from their banks, almost all

22 The Postal Record January 2016 Above and far left: A Postal Savings System note from the Post Office Department of the United States of America issued in 1940. The front had an ornate border, a vignette of the U.S. Seal and the printed signa- ture of the postmaster general. On the back was a chart for when the interest would be received. Left: U.S. Postal Savings stamps were issued in 10 cent, 25 cent, 50 cent, 1 dollar and 5 dollar incre- ments. When these 10-cent stamps were collected into a dollar, they could be used to open or be added to an account. Below: A Postal Savings System account-holder card issued in Washington, DC, in 1935

January 2016 The Postal Record 23 of it came from money turns, they could exchange increments that had been hidden of $20 for postal savings bonds, which under mattresses or in yielded 2.5 percent interest. other locations. Things continued like that until Due to deposit caps, the 1930s, when the Great Depression many deposits were changed everything. turned away. The Times reported that a Banking refuge miner in one western Following the stock market crash town had attempted to in the fall of 1929, the world economy deposit $20,000 in coins plunged off a cliff. Unemployment in “tarnished and long un- the United States rose to 25 percent. used” from being saved Farming and rural communities suf- in canvas sacks. Turned fered as crop prices fell by nearly 60 away beyond the maxi- percent. Construction virtually halted mum deposit, the miner in many areas. And many banks went took the majority of the out of business, taking away whatever coins back, likely return- savings people had in them. ing them to his sacks. In 1930, nearly 50,000 new depositors The Times estimated that took their savings to the Postal Savings more than $30 million System, adding almost $22 million in had been turned away in similar fashion. An ad in the November 1913 edition of Boy’s new deposits. At that time, the USPSS Life for the Postal Savings System One of the surprises of the early success had $191 million in deposits. Those de- was where the money was coming from. posits nearly doubled every year for the Before going into effect, many assumed next three years, eventually reaching that the money would come from the $1.2 billion during the 1930s. rural poor in the South and Midwest, but With these additions, the demo- instead it came predominantly from the graphics shifted from the immigrant urban areas, largely from immigrants. hubs in the Northeast and West to the According to congressional testimony in 1913: “Hundreds of thousands of our Midwest and South, where banks were A poster advertising the security of the USPSS newly made citizens distrust banks and going under much more frequently. It’s will not patronize them. They have abso- highly likely that the USPSS reduced lute confidence in the Government and the number of bank runs by putting know what postal savings banks are.” money back into the local banks. The Postal Savings System encour- “The postal savings system is a logi- aged this phenomenon, offering cal refuge for the timid, and functions information in 24 languages with post- best in areas of financial stress,” then- masters using phrase books in various Postmaster General Walter Brown told languages to handle deposits from non- The New York Times. English speakers. Advertisements were Even though this was one of the most run in foreign-language newspapers successful times for the system, when and magazines in the United States. By President Franklin D. Roosevelt signed 1915, immigrants accounted for 60 per- the Federal Deposit Insurance Corpora- cent of account holders and 75 percent tion (FDIC) into law as part of the Bank- of the total deposits, despite only being ing Act of 1933, it ultimately marked the 15 percent of the U.S. population. beginning of the end of postal banking. The limits on deposits were raised over time, but still were held in check. ‘Buy war bonds’ The savings limit was raised to $2,500 Though selling savings bonds had in 1918. If people wanted better re- been part of the USPSS for its entire

24 The Postal Record January 2016 existence, they took on prominence On April 27, 1966, the Post Office during World War II. stopped accepting deposits and re- In 1941, citizens could buy “Defense fused to open new accounts. Interest Savings Stamps,” which were treasury payments were cut off, and by the defense bonds used to fund the war ef- time the Postal Savings System offi- fort. These were advertised to children, cially ended on July 1, 1967, about $50 who bought them in droves, bringing million remained in deposits. Over in $100 million in the first year. It was the next 17 years, most of those funds the Post Office’s most popular product were either claimed or turned over to during the war, ultimately raising $8 the Treasury. billion in additional war funding. By 1947, deposits had jumped to Mostly forgotten $3.4 billion from 4 million depositors, Even at the time of its demise, many thanks in part to a shortage of goods already had forgotten about the pro- to buy and to the drop in interest rates gram. Time magazine did an article on at normal savings banks. Additionally, it in its July 13, 1970, edition and solely starting in the 1940s, the USPSS intro- focused on the war bonds aspect: duced the first-ever banking by mail “There was a time when they were service to military personnel stationed as ubiquitous as victory gardens, abroad, bringing in even more deposits. rationing coupons, or the vats of bacon grease that mothers used to collect as Depositors in 1946 The end of USPSS part of the war effort. In World War The 1950s saw a shift away from II, nearly every schoolchild saved his postal banking. With the proliferation nickels and dimes for Government of cars and highways, it was easier Defense Savings Stamps to paste into a for citizens to get to banks, and the book toward the day he could pur- FDIC meant that banks were safer and chase a $25 war bond…. Many Ameri- people had much more confidence in cans under 30 hardly knew that such them. As interest rates at those banks stamps existed.” started to rise, people began taking Even fewer know now. But until the their postal savings elsewhere. FDIC revolutionized banking and made Over the next 14 years, postal bank it safe, postal banking helped millions deposits declined, and the govern- of Americans protect their savings. It ment began to question the need brought uncounted immigrants and for the Postal Savings System. Two working poor into the banking system government studies found that the and helped ease the flow of money original goals of the program no longer during financial calamities. applied, and several bills were intro- Today, new problems have arisen that duced in Congress to end the program. have led many advocates of financial By 1964, deposits had dropped to services reform to go back to the future. $416 million, and two years later Presi- networks have shrunk dent Lyndon Johnson’s administration in many urban and rural communities, called for its end as part of streamlining leaving nearly 70 million Americans the federal government. Congress soon unbanked (for more on the proposal for acted to officially abolish the USPSS. modern postal banking, see the Decem- This article was written from information The only opposition came from the ber issue of The Postal Record). in Mehrsa Baradaran’s How the Other United Federation of Postal Clerks and Whether postal banking will ever ex- Half Banks and the USPS historian’s July the National Postal Union, two unions ist in the future of the United States isn’t 2008 article on the Postal Savings Sys- that merged with others into the current knowable right now, but it’s important tem, found at about.usps.com/who-we-are/ American Postal Workers Union in 1971. that its past not be forgotten. PR postal-history/postal-savings-system.pdf.

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