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What is a Service Charge?

Tricia Christensen
Updated Jan 20, 2024
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There are many definitions for the term service charge, and a number of heated opinions on when such charges are justifiable. The standard definition is that it is a fee for some service rendered that is in addition to the amount already paid for a particular product. These charges are added to all types of services. For instance, a cable company might assess fees for providing customer service to those people who are already paying customers. Airlines may add a variety of service fees and could even charge to book a ticket; hotels may do the same and add a booking fee.

Service charges might be very noticeable to people who use discount travel sites in which, to access discounts, they must pay a fee. Ticket sellers for concerts and other events also typically add service charges to the price of the ticket. Another common situation in which one is applied is when people pay their bills over the phone with a customer service representative or if they use a variety of pay services to get their bills paid on time.

People may be most familiar with the service charge as it relates to banking. Banks may charge a monthly service fee for customers, to use an ATM that doesn’t belong to the bank, or if people overdraw their account. The last is likely to be very noticeable, since banks may charge quite a bit of money to cover the overdraft.

In fact, one charge that banks had to quickly abandon centered on the issue of talking to tellers. In the early 2000s, some banks began to charge a teller fee, but customers quickly closed their accounts, feeling that this service was a right and not appropriate to charge. Banks quickly got the message that this was one fee they could not charge, though other businesses, like utility companies, have instituted similar fees.

Another type of service charge has many people confused. This is when people at restaurants are told to pay a set percentage of the bill as a service fee in lieu of a tip. Many waiters and waitresses can point to the immediate problems with this scenario, as any fee is not a tip and belongs to the restaurant owner and not to the waiter or waitress. This means the owner can distribute the fee in any manner he sees fit or can keep all of it.

An additional example of this is when people pay a delivery fee for their pizza. They might want to bear in mind that the person making that delivery is not likely to get a tip out of the fee. Adding these charges often distresses those people who depend on tips for a living, since the fee may reduce their income if a proprietor is injudicious in distributing them.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Tricia Christensen
By Tricia Christensen
With a Literature degree from Sonoma State University and years of experience as a WiseGeek contributor, Tricia Christensen is based in Northern California and brings a wealth of knowledge and passion to her writing. Her wide-ranging interests include reading, writing, medicine, art, film, history, politics, ethics, and religion, all of which she incorporates into her informative articles. Tricia is currently working on her first novel.
Discussion Comments
By anon163443 — On Mar 27, 2011

Security services charge service charges of 10 percent and charge the service tax on the amount, including the service charges. Actually, the service tax is paid on the amount of actual services rendered.

By icecream17 — On Aug 24, 2010

Suntan12-You know hotels charge service fees too. It is usually something like $15 per day. The service fee is something that most people don’t notice, but the costs do add up if you stay for a week or so.

I also heard that many airlines are now charging service fees for customer service calls. The fee is like $25, if you choose to speak to a live person.

Is that crazy or what? I never thought that I would ever have to pay to ask somebody a question about an airline ticket. Wow, I guess times have changed.

By suntan12 — On Aug 24, 2010

Subway11- I wanted to tell you that they also charge you ATM service charge fees.

My bank charges $3.50, if I go to a competitor and use their ATM. In addition to $3.50 that I have to pay my bank, I also have to pay a service charge to the bank I'm using.

There really should be no service charge but I guess that's the way banks make money.

But, the worst service charge of all is the cash advance fee, which is charged by all banks. The credit card service charge on a cash advance is anywhere from 2% to 4% of the amount withdrawn. Banks say that it costs more money for them to process these cash transactions so they have to pass on these fees to consumers.

By subway11 — On Aug 24, 2010

When I think of a service charge, I automatically think of banks. Banks usually charge a monthly service charge or maintenance fee for accounts that don't have any activity.

In order to avoid these accounts becoming dormant, the banks will charge a service fee. In order to avoid the service fee, you usually have to use the ATM, or debit card, or have direct deposit.

The banks do this in order to keep your account active so that you will continue to deposit money. Some of these banks charge $18-$20 maintenance fees every month if you fall below a certain minimum balance.

Tricia Christensen
Tricia Christensen
With a Literature degree from Sonoma State University and years of experience as a WiseGeek contributor, Tricia...
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