The Post Office Savings Bank system was created a few months after Confederation in April 1868. By virtue of the new Post Office Act, certain post offices were allowed to accept, keep, and remit savings, and pay a modest interest rate. The Savings Bank branch received and posted daily reports of the money deposited, acknowledged amounts deposited, credited and debited individual accounts, and ensured that each Postmasters accounts were accurate. The Post Office Savings Bank system was put into operation on 1 April 1868 when 81 principal offices in Ontario and Québec were opened. By 1 July 1868, 122 additional offices were added to the list and by the end of the first year of business, 213 offices were in operation.
The philosophy behind the policy rested on the twin foundation of government involvement in or sponsorship of savings banks, and the need to encourage thrift habits among the working classes. Unlike the situation in Britain where the private trustee banking system prevailed for 30 to 40 years, in British North America and the Maritime colonies (New Brunswick, Prince Edward Island and Nova Scotia) during the first half of the 19th century, the colonial government took a leading role in the operation of savings banks. This tradition was inherited by the new central government of the Dominion created by the British North America Act of 1867.
For the most part, the Post Office Savings Banks system took root in central Canada where, especially in Ontario, the savings banks were distributed more evenly in the slightly larger towns and rural agglomerations accessible by railway communication. In the West, growth of the Post Office Savings Banks only came after the settlement boom of the 1880s and 1890. In the Maritime provinces, the Post Office Savings Bank had to share the savings market with the savings banks of the Finance department until it was decided to merge the two systems into the Post Office department.
There was also a political purpose to the establishment and growth of the Post Office Savings Banks. The system offered opportunities within the ranks of the postal bureaucracy for the appointment of friends of the party in power in need or deserving of some material reward. Of even greater import was the fact that the savings of eastern and central Canada helped subsidize railroad construction in the West as well as from coast to coast.
The decline of the Postal Savings Bank system dates from the decision of the minister of Finance, in 1898, to lower the interest rate on deposits. The decision came in response to considerable lobbying by the chartered banks, which, during the 1890s, became much more aggressive in their pursuit of small-time bank depositors. Other institutions, such as the Caisses Populaires and the co-operative societies in Saskatchewan, also catered to the savings needs of the popular classes. Finally, early in the 20th century, authorities within the Post Office department developed a finite view of the role of government institutions in the banking sector. This finite view would cut short any dreams of expanding the system. Indeed, it would make the decision in 1968-69 to abandon the Post Office Savings Bank that much easier.
Amyot, Chantal and John Willis. "Saving, Sending and Spending Money." In The History of the Rural and Small-town Post Office in Canada. Ottawa: Canadian Postal Museum/Canadian Museum of Civilization, forthcoming.
Bunbury, Dan. "The Public Purse and State Finance: Government Savings Banks in the Era of Nation Building, 1867-1900." In Canadian Historical Review 78, 4 (December 1997), pp 566-598.
Neufeld, E. P. The Financial System of Canada: Its Growth and Development. New York: St. Martins Press, 1972.