Postal Savings Certificate of Deposit (2024)

Overview

The Post Office Department offered government-backed savings services to American residents for over half of the twentieth century. The postal savings system began accepting deposits from individuals in 1911. It allowed for incremental savings as small as a ten-cent stamp and for conversion to interest-bearing certificates or bonds. It offered account holders the post office's convenient location and hours and the security of depositing funds in a federal institution. Banking reform and the growing economy pushed the postal savings system into obsolescence. The Post Office Department accepted the last deposits in 1966 and brought the system to its end by paying out interest and disbursing funds to account holders and state governments over the next two decades.

Background

In 1871 Postmaster General John A. J. Creswell first recommended a postal savings bank (such as Great Britain started in 1861) to generate funds for a postal telegraph network. Nearly four decades of debating the proposed federal savings institution peaked when the 1907 Panic shook the public's trust of private banks. President Theodore Roosevelt advocated using post offices to fulfill the needs of moderate depositors and communities without banks. Under his successor, William H. Taft, legislation for the postal savings system passed on June 25, 1910. It authorized the Post Office Department "to establish postal savings depositories for depositing savings at interest with the security of the Government for repayment thereof, and for other purposes." Politicians instilled the postal savings system with their intents to: provide a safe financial institution in communities across the country; entice hoarders to get their money out of hiding; offer immigrants the familiarity of postal savings common in many of their home countries; encourage thrift among the working, poor, and children; and pose no competition for banks.

Administration & Operations

A board of trustees consisting of the postmaster general, the secretary of the Treasury and the attorney general handled the administration of the postal savings system. Operations fell to the third assistant postmaster general. The Post Office Department initiated the system in a trial period at 48 depositories, opening one per each state and territory on January 3, 1911. The growing number of postal depositories brought savings facilities to small and rural communities where few to no private banking services previously existed. To placate the banking industry's concerns over the new postal system, legislators had built in a cap on deposits and relatively low interest rates.

Planned to be self-sustaining, the system also had to be dependable, especially in its ability to cover withdrawals made by the account holders. The law required the Department to distribute the deposits among a 5% reserve in the U.S. Treasury, no more than 30% in government bonds and securities, and the majority to be redeposited with local banks. This redepositing worked well to infuse the regional banks with funds for most of the 1910s and 1920s. During the Depression, banks found that they had to refuse the redeposits because their interest rates did not meet the requirements of the Post Office Department. The Department increasingly had to turn to investing in government securities, well exceeding the legal allotment.

Accounts, stamps, certificates, and bonds

Featuring the reliability and availability of the post office, the postal savings system appealed to depositors without ever advertising its services. To open a postal savings account, an individual had to be at least ten years of age. The system permitted only individually-held accounts. The deposit limits remained low: from the outset the maximum was $500, which was raised in 1916 to $1,000 interest-bearing plus $1000 non-interest earning balance, and finally a total of $2,500 in 1918. Proof of deposit was issued in certificate form. As the Post Office Department accepted deposits only in dollar amounts, it issued savings stamps for the difference. Savers accumulated postal savings stamps in denominations of 10 cents, 25 cents, 50 cents, 1 dollar and 5 dollars. The stamps could be pasted onto deposit cards or in booklets that could be redeemed for cash, certificates and bonds. Depositors could exchange their funds for postal savings bonds earning 2 ½% interest per annum. Beginning in 1935, postal savings stamps and certificates of deposits could be exchanged for U.S. Treasury bonds. Account holders could withdraw funds with few restrictions - in 1933 customers had to give 60-day notice for withdrawals with accrued interest and in 1953 the Department began charging for cashing in certificates within a month of issuance.

Trends & Closure

The public responded slowly to the introduction of postal savings; post World War I even saw a downturn in the number of depositors and the amount of credit in the system. The tide changed in the midst of bank closures during Great Depression and the total savings reached to over one billion dollars by 1933. The system continued to flourish through the Second World War, but by 1948 higher interest rates and proven reform in the banking sector brought about a downward trend for postal savings from which the system did not rebound.

Congress abolished the postal savings system in 1966 and the Post Office Department stopped accepting deposit on April 27th of that year. On July 1, 1967 unclaimed deposits and interest from 600,000 account holders amounting to $60 million was transferred to the U.S. Treasury. After paying out depositors who came forward, remaining funds were distributed proportionally to states and jurisdictions. The statute of limitations enacted on July 13, 1984 established that no claims for postal savings deposits could be brought after July 13, 1985.

Written by Lynn Heidelbaugh