The United States Postal Savings System was a postal savings system signed into law by President William Howard Taft and operated by the United States Post Office Department, predecessor of the United States Postal Service, from January 1, 1911, until July 1, 1967. [1] [2]
The Postal Savings System was established as a result of lobbying by farmers and workers with grievances against the private banking system due to numerous bank closures and inadequate credit opportunities. [3] After the Panic of 1907, the Republican Party supported a postal banking system, while Democrats preferred deposit insurance. After Republican William Howard Taft won the 1908 United States presidential election, the United States Postal Savings System began in 1910. [4]
The system accepted deposits from the general public, but did not offer full banking services. Instead, it redeposited the funds to designated banks at interest. It took one-half percent of the interest to cover administrative expenses and passed on the rest—around two percent—to the customer. Accounts in the system were initially limited to a balance of $500, which was raised to $1,000 in 1916 and to $2,500 in 1918. Immigrants, workers, farmers and people living in parts of the rural West and Midwest were most likely to patronize the Postal Savings System until the Great Depression, when high rates of use were no longer “limited to certain places and particular groups.” [5]
Most other postal savings systems invested deposits in public debt, but in 1910 Americans believed that the small national debt of the United States was temporary, so 95% of deposits in the US system were redeposited in national banks within the same state that paid 2.25%, and in public debt if such banks were unavailable. To avoid competing with banks that paid 3.5% interest on deposits on 1910, the system was fixed to 2% by law. [4] Its creators expected that the postal savings system would stabilize the economy, as when customers withdrew funds during a bank run they would deposit into the postal system, which would redeposit into the banking system. Maureen O'Hara described the mechanism as a "gerbil-like treadmill". (She wrote that when several large banks that had gained deposits during the March 2023 United States bank failures redeposited funds into First Republic Bank, "The gerbil lives again!") [6]
Total assets in the postal system remained at about $200 million until the Great Depression, when many savings and loan associations (S&Ls) failed. Customers seeking the postal savings system's security—and the 2% interest rate, which was now comparable to what banks and S&Ls offered—greatly increased postal savings deposits to about $1.2 billion. Because the system could not redeposit funds in S&Ls, which made most mortgage loans, the housing market weakened. As more banks refused postal deposits because of the 2.25% (raised to 2.5% in 1934) interest requirement, the system increasingly invested in the only legal alternative, public debt, further constricting the money supply. O'Hara and David Easley wrote that the inflexibility of the postal system inadvertently worsened the economy during the Depression, instead of stabilizing it as intended. [4]
At its peak in 1947, the system held almost $3.4 billion in deposits. In addition to holding cash deposits, the system also sold fixed-term bonds and operated a Savings Card program. These cards provided spaces for a fixed number of postage stamps, each purchased for a few cents. Once filled, the cards could be presented for credit to a savings account in the system.
From 1921, depositors were fingerprinted. [7] Although this practice was initially 'not to be associated with criminology', the early 1950s Yours Truly, Johnny Dollar radio show suggested that in some instances, Postal Savings account fingerprints were used for positive identification in criminal cases.
According to a 2019 analysis, "the program was initially used by non-farming immigrant populations for short-term saving, then as a safe haven during the Great Depression, and finally as long-term investment for the wealthy during the 1940s... Postal Savings was only a partial substitute for traditional banks, as locations with banks often still heavily used postal savings." [8]
The system originally had a natural advantage over deposit-taking private banks because the deposits were always backed by "the full faith and credit of the United States Government." However, because the establishment of the Federal Deposit Insurance Corporation gave a guarantee to depositors in private banks, the system lost its advantage in trust. The rise of United States Savings Bonds during and after World War II also drew funds away from the system. By the 1960s, with American banks fully recovered and more accepting of consumer deposits, the Postal Savings System was seen as redundant. A campaign by bankers dating back to the service's introduction had lobbied to create this impression, even though there were 1 million depositors. [9] The government passed legislation requiring it to stop accepting deposits on July 1, 1967, and to transfer remaining deposits (approximately $50 million) to a claims fund of the United States Treasury. In 1971, most of the fund was distributed to state and local authorities in proportion to the obligations of individual post offices. Outstanding deposit claims were voided in 1985.[ citation needed ]
On March 26, 1911, the locations of the central depositories for the first 19 states were established, followed the next day by 25 others. The post offices were selected by merit rather than by geography, based on those with the best efficiency record in the state. [10]
The monetary policy of The United States is the set of policies which the Federal Reserve follows to achieve its twin objectives of high employment and stable inflation.
The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation supplying deposit insurance to depositors in American commercial banks and savings banks. The FDIC was created by the Banking Act of 1933, enacted during the Great Depression to restore trust in the American banking system. More than one-third of banks failed in the years before the FDIC's creation, and bank runs were common. The insurance limit was initially US$2,500 per ownership category, and this has been increased several times over the years. Since the enactment of the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2010, the FDIC insures deposits in member banks up to $250,000 per ownership category. FDIC insurance is backed by the full faith and credit of the government of the United States, and according to the FDIC, "since its start in 1933 no depositor has ever lost a penny of FDIC-insured funds".
In the United States, banking had begun by the 1780s, along with the country's founding. It has developed into a highly influential and complex system of banking and financial services. Anchored by New York City and Wall Street, it is centered on various financial services, such as private banking, asset management, and deposit security.
A bank account is a financial account maintained by a bank or other financial institution in which the financial transactions between the bank and a customer are recorded. Each financial institution sets the terms and conditions for each type of account it offers, which are classified in commonly understood types, such as deposit accounts, credit card accounts, current accounts, loan accounts or many other types of account. A customer may have more than one account. Once an account is opened, funds entrusted by the customer to the financial institution on deposit are recorded in the account designated by the customer. Funds can be withdrawn from loan loaders.
Full-reserve banking is a system of banking where banks do not lend demand deposits and instead only lend from time deposits. It differs from fractional-reserve banking, in which banks may lend funds on deposit, while fully reserved banks would be required to keep the full amount of each customer's demand deposits in cash, available for immediate withdrawal.
A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account or bank account held at a bank or other financial institution. It is available to the account owner "on demand" and is available for frequent and immediate access by the account owner or to others as the account owner may direct. Access may be in a variety of ways, such as cash withdrawals, use of debit cards, cheques and electronic transfer. In economic terms, the funds held in a transaction account are regarded as liquid funds. In accounting terms, they are considered as cash.
A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may fail in the near future. In other words, it is when, in a fractional-reserve banking system, numerous customers withdraw cash from deposit accounts with a financial institution at the same time because they believe that the financial institution is, or might become, insolvent. When they transfer funds to another institution, it may be characterized as a capital flight. As a bank run progresses, it may become a self-fulfilling prophecy: as more people withdraw cash, the likelihood of default increases, triggering further withdrawals. This can destabilize the bank to the point where it runs out of cash and thus faces sudden bankruptcy. To combat a bank run, a bank may acquire more cash from other banks or from the central bank, or limit the amount of cash customers may withdraw, either by imposing a hard limit or by scheduling quick deliveries of cash, encouraging high-return term deposits to reduce on-demand withdrawals or suspending withdrawals altogether.
A savings and loan association (S&L), or thrift institution, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans. The terms "S&L" and "thrift" are mainly used in the United States; similar institutions in the United Kingdom, Ireland and some Commonwealth countries include building societies and trustee savings banks. They are often mutually held, meaning that the depositors and borrowers are members with voting rights, and have the ability to direct the financial and managerial goals of the organization like the members of a credit union or the policyholders of a mutual insurance company. While it is possible for an S&L to be a joint-stock company, and even publicly traded, in such instances it is no longer truly a mutual association, and depositors and borrowers no longer have membership rights and managerial control. By law, thrifts can have no more than 20 percent of their lending in commercial loans—their focus on mortgage and consumer loans makes them particularly vulnerable to housing downturns such as the deep one the U.S. experienced in 2007.
The savings and loan crisis of the 1980s and 1990s was the failure of 32% of savings and loan associations (S&Ls) in the United States from 1986 to 1995. An S&L or "thrift" is a financial institution that accepts savings deposits and makes mortgage, car and other personal loans to individual members.
Postal savings systems provide depositors who do not have access to banks a safe and convenient method to save money. Many nations have operated banking systems involving post offices to promote saving money among the poor.
Deposit insurance or deposit protection is a measure implemented in many countries to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its debts when due. Deposit insurance systems are one component of a financial system safety net that promotes financial stability.
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The Expedited Funds Availability Act was enacted in 1987 by the United States Congress for the purpose of standardizing hold periods on deposits made to commercial banks and to regulate institutions' use of deposit holds. It is also referred to as Regulation CC or Reg CC, after the Federal Reserve regulation that implements the act. The law is codified in Title 12, Chapter 41 of the US Code and Title 12, Part 229 of the Code of Federal Regulations.
Terminating deposits were a form of savings-and-loan that were one of the key products of the early building society movement in the UK and from there they spread through what is now the Commonwealth. They were banned in the UK around 1910, and are now illegal everywhere, the last vestiges being seen in New Zealand.
Japan Post Bank Co., Ltd. is a Japanese bank headquartered in Tokyo. It is a corporation held by Japan Post Holdings, in which the government of Japan has a majority stake.
The Freedman's Saving and Trust Company, known as the Freedman's Savings Bank, was a private savings bank chartered by the U.S. Congress on March 3, 1865, to collect deposits from the newly emancipated communities. The bank opened 37 branches across 17 states and Washington DC within 7 years and collected funds from over 67,000 depositors. At the height of its success, the Freedman's Savings Bank held assets worth more than $3.7 million in 1872 dollars, which translates to approximately $80 million in 2021.
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A deposit account is a bank account maintained by a financial institution in which a customer can deposit and withdraw money. Deposit accounts can be savings accounts, current accounts or any of several other types of accounts explained below.
Morris Plan Banks were part of a historic banking system in the United States created to assist the middle class in obtaining loans that were often difficult to obtain at traditional banks. They were established by Arthur J. Morris (1881–1973), a lawyer in Norfolk, Virginia, who noticed the difficulty his working clients had in getting loans. The first was started in 1910 in Norfolk, and the second in Atlanta in 1911.
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