Public banking options could be coming to your community. But what are they and how do they work? Let me explain.

Whether you got a new job and are looking for somewhere to stash your paycheck, or are just looking for a new bank that better meets your needs, you may have spent some time considering where to open up a bank account.

While there are many private banking options to choose from, not all of them effectively meet customers’ needs. Many Americans are interested in consumer-friendly banks that are accessible and have low or no fees, while others look for banks that have local roots or more ethical behavior than bigger nationwide banks. Still, other Americans are unbanked, meaning that they don’t have access to any checking or savings accounts with a bank or credit union.

What is public banking?

Representatives Rashida Tlaib and Alexandria Ocasio-Cortez have recently introduced legislation that could provide a promising alternative to traditional banks.

The Public Banking Act would establish a grant program that would allow for the formation of state and locally administered banks. While this act wouldn’t establish new public banks in and of itself, it would make it easier for public banks to form and to become insured by the FDIC.

These public banks would operate as nonprofits, and wouldn’t charge any monthly maintenance fees or require minimum deposits. That would make them accessible to citizens who find themselves shut out of the current banking system.

Since they wouldn’t be as focused on turning a profit as traditional banks, public banks could also provide lower interest rates for small businesses and public infrastructure projects, investing in local communities and cutting out Wall Street middlemen.

How does public banking work?

Public banking would function as a public service, like post offices or fire departments. In fact, in many countries, public banking is often directly tied to the postal system. The United States even had its own postal banking system from 1911 to 1966.

Today, there is one public bank operating in the United States, the Bank of North Dakota.

Unlike privately owned banks, public banks aren’t beholden to shareholders or required to turn a profit at the expense of ordinary consumers. Instead, these banks are able to charge lower fees and lend money at lower rates to local consumers and businesses.

Public banks can receive deposits from local and state governments in the form of tax revenue and other government income, and can also partner with existing local banks to fund a variety of projects.

How public banking could affect your finances

Public Banking: Here's What It Could Mean For Your Finances - How public banking could affect your finances

For many people, banking with a public bank would be pretty similar to banking with a traditional for-profit bank. Some of the potential benefits of public banking could include providing access to banking for more Americans, investing in local and community projects, and effectively delivering relief funds and government payments.

Helping unbanked and underbanked Americans

As of 2019, approximately 7.1 million American households were unbanked, meaning that no member of the household had a checking or savings account with a bank or credit union. For many Americans, high minimum deposit requirements prevent them from opening an account, while others cite excessive fees and a lack of trust in private financial institutions as reasons why they do not have a bank account. When money is tight, these Americans often rely on alternative services, like payday loans or pawn shops, with high fees and punishing interest rates.

Public banks would charge no monthly maintenance fees and have low or no minimum deposit requirements, making them accessible to many Americans who currently fall through the cracks of the private banking system. Public banking would also provide an alternative for Americans who have bank accounts but are currently dissatisfied with their bank or unable to qualify for other financial products.

Investing in local communities

Because public banks would not be compelled to pursue sky-high profits, they could offer loans at low interest rates to fund local businesses and public infrastructure. These could include projects like affordable housing and renewable energy. Some public banks, like the Bank of North Dakota, also offer low-interest loans to students and other specific groups.

Public banks would cut out the middleman and keep funds local, instead of profiting national banks, executives, and shareholders.

Effectively distribute relief funds

During the pandemic, millions of Americans were eligible for relief funds and stimulus checks to help them weather the turbulent economic times. While some Americans were able to receive funds directly to their bank account through direct deposit, others were mailed paper checks they had to cash, often accompanied by high check-cashing fees. Still, other Americans waited weeks or months for their funds to arrive, during a time when money was tight.

Public banks would be one way to easily and effectively distribute funds to Americans, without relying on private institutions. They would expand access for Americans without bank accounts and would prevent predatory services from taking a chunk out of much-needed relief funds.

Better for the environment

Another way public banks would operate differently than private banks is in their effect on the environment. The Public Banking Act would prohibit public banks from investing in fossil fuel projects, and would instead provide public banks with the capability to issue low-interest loans for environmentally-friendly projects.

This puts public banks in stark contrast to private banking behemoths, who have invested over 2.7 trillion dollars in fossil fuels since 2016, according to a report from the Rainforest Action Network.

A public alternative to big banks

Public banks wouldn’t replace big banks; instead, they’d provide an alternative for consumers dissatisfied with the status quo. This would give Americans the ability to choose between for-profit banks and local, community-driven public banks.

In some cases, public banks could even partner with existing local banks to more effectively distribute funds. Public banking wouldn’t solve all of the financial industry’s problems, but it could provide a more ethical alternative to the current options.

Drawbacks of public banking

While public banks attempt to solve many of the problems of the current banking system, they’re not entirely without flaws. Some potential drawbacks to public banks include potential lack of oversight and insufficient funds, as well as the inherent risk that all banks, public or private, face when it comes to lending money that may not be paid back. 

Alternatives to public banking

Public Banking: Here's What It Could Mean For Your Finances - Alternatives to public banking

For now, public banks still aren’t an option for the vast majority of Americans. However, there are some banking options that beat the competition when it comes to consumer-friendly policies, low fees, and ethical behavior.

Credit unions

Credit unions share some similarities to public banks in that they aren’t beholden to shareholders and executives, and often have local roots and programs that benefit the community. Like public banks, credit unions are not for profit, but instead of being owned and operated by local or state governments, credit unions are cooperative institutions owned by members.

Credit unions also often feature lower fees and rates than for-profit banks. Some federal credit unions even offer Payday Alternative Loans, which allow cash-strapped consumers to borrow money at lower rates than predatory payday loans. 

Low-fee banks

In recent years, consumer-friendly, low-fee banks have proliferated as an alternative to big banks with exorbitant rates and fees. Many of these banks primarily operate as online banks, with simple websites and mobile apps designed to make navigating the banking process easier for consumers.

Ethical banks

Many big banks make harmful investments in areas like fossil fuels and for-profit prisons. While these investments are good for a bank’s bottom line, informed consumers may be interested in more ethical alternatives.

Companies like Aspiration, Amalgamated Bank, and Beneficial State Bank are B Corp certified, which means that they meet high standards for social and environmental performance, transparency, and accountability.

Some banks, like Sunrise Banks and First Green Bank, are members of the Global Alliance for Banking Values, which is a network of banks around the world that are committed to community investments and driving positive change.

Still, other banks are designated as Community Development Financial Institutions, or CDFI. These banks are dedicated to providing banking access for low-income and marginalized individuals and communities. Banks like City First Bank of DC, Southern Bancorp, and VCC Bank are all CDFIs.


While the Public Banking Act is still only a bill, it represents a promising alternative to traditional banking for millions of Americans. This piece of legislation would also complement other related policy proposals, such as postal banking and the Green New Deal. In the meantime, there are still a variety of banking options with low fees and ethical investment practices for consumers who qualify.

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About the author

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Margaret Wack is a writer based in Honolulu, Hawaii. Her writing on personal finance has appeared in venues including The Simple Dollar and She has degrees from Smith College and St. John's College, and enjoys good tea, dead languages, and bad weather.