The Savings and Financial Electronic Transaction (SAFE-T) Account

Over the past two decades, policymakers, academics, and others have pursued an array of policies and strategies to help lower and middle income households^[i] to build savings and assets and access reasonably-priced financial products at mainstream institutions.  While some progress has been made, there have been few advances to delivering a high-value, affordable financial product at scale.

Over the last five years, however, technological developments, new entrants into the financial services market, and new insights into consumer demand, particularly the financial behavior of lower income consumers, have boosted the creation of innovative financial products. Prepaid products-accounts that are pre-funded and accessible using network branded cards-represent an important development in the evolving financial services industry.  While similar to debit cards connected to a checking account, prepaid products are not explicitly linked to a typical demand-deposit account.  As such, these products can meet many of the transaction functions that checking and savings accounts offer, but without the limitations of credit checks and ChexSystems, which prevent millions from opening accounts.  Plus, they can offer remittance and money order functions that are valued among lower income consumers.

To build on the financial innovations offered by prepaid products, leverage the billions of dollars in annual tax refunds, and harness the bargaining power of the federal government, this paper proposes the delivery of a Savings and Financial Electronic Transaction Account-or SAFE-T account-at tax time.  Each year, tax refunds would be electronically deposited into individual SAFE-T accounts for tax filers who do not direct deposit their refund into another account or who do not opt out of the SAFE-T account.  The refund would be bifurcated between a transaction and a savings account, with five percent automatically deposited into an interest bearing savings account. 

The SAFE-T account, which would be issued, delivered, and serviced by financial institutions on behalf of the U.S. Department of Treasury, would be accessible with a network branded card and could be used for point of sale transactions, to access cash, to make web-based or telephone bill payments and retail purchases, and possibly to make remittances and secure money orders.  The savings component would help to meet short-term expenses and savings goals. And with enactment of federal legislation, the SAFE-T account could serve as the "plumbing" for large-scale asset policy targeted at lower income families. 

Utilizing the pooled account structure of the prepaid product, the SAFE-T account would leverage the billions of dollars in tax refunds that are not electronically deposited each year to generate sufficient volume to entice financial institutions to offer the product at low cost.  The federal government would save millions of dollars annually through the electronic delivery of refunds that are currently issued via paper checks.  The availability of the SAFE-T account also could encourage more households to file their taxes in order to receive an SAFE-T account, resulting in more households "on-the-grid" and generating additional tax revenues at the state and local level.

[i] "Lower income" is the term used throughout the paper to refer to households of low, moderate, and middle incomes, which is defined as households with incomes equal to or less than $37,771, based on the 2006 Current Population Survey of the U.S. Census Bureau.