Over the past two decades, policymakers, academics, and others have pursued an array of policies and strategies to help lower and middle income households build savings and assets and access reasonably-priced financial products at mainstream institutions. While some progress has been made, there have been few advances in 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 have boosted the creation of innovative financial products. Prepaid products–essentially checkless checking accounts–represent an important development in the evolving financial services industry. 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. Moreover, they can offer many other features and 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 the savings account.
The SAFE-T Account would be issued, delivered, and serviced by financial institutions on behalf of the U.S. Department of Treasury. Money in the account would be accessible with a network branded card at ATMs, and could be used to make retail purchases, to make bill payments, and possibly to sent remittance payments and generate checks. The savings component would help to meet short-term savings goals. With federal legislation, the SAFE-T Account could serve as the “plumbing” for large-scale savings policy targeted at lower income families.
SAFE-T Accounts would leverage the billions of dollars in tax refunds that are not electronically deposited each year to incent financial institutions to offer the product at low to no 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, resulting in more households “on-the-grid” and generating additional tax revenues at the state and local level.
To read the full paper, please click on the PDF below.