What is a 'Service Charge'

A service charge is a type of fee collected to pay for services related to the primary product or service being purchased. For example, a concert venue may charge a service fee in addition to the initial price of a ticket in order to cover the cost of security or for providing the convenience of electronic purchases.

BREAKING DOWN 'Service Charge'

Service charges are often levied when human interaction between a consumer and the company is involved, with services beyond the physical good itself considered extra. Service charges go by a number of different names depending on the industry, including booking fees (hotels), security fees (travel), maintenance fees (banking) and customer service fees. Let’s look at some of these service charges in detail.

  • Banking Industry: When you open a checking or savings account with a bank, the bank charges a monthly fee, known as a maintenance fee, which is debited from the account at the end of the month. Another example of a service fee is the fee charged for using the ATM of a competing bank. Also, an account holder who tries to transfer money to someone else using Interac e-Transfer or wire transfer may be charged a service fee by his or her bank. Bank service charges are typically set at a flat standard rate.
  • Hospitality Industry: Most hotels and restaurants in the U.S. charge a service fee that’s a percentage of the total bill, often in lieu of tipping. The delivery fee charged for ordering room service at a hotel or a gratuity applied to the bill for a large group dining at a restaurant are examples of service charges. If the total bill on an order is $250, and gratuity is stated to be 18%, then the total bill to be paid is $250 + (18% x $250) = $295.
  • Travel Industry: Airlines collect a number of service charges, some of which include checked or oversized baggage fees, change or cancellation fees, early seat selection fees and inflight experience charges, such as WiFi, food, beverage and entertainment. An airport improvement fee or embarkation fee is a service charge that is applicable to departing and connecting passengers at an airport. It is levied by the government or an airport management corporation, and the proceeds are usually intended for funding of major airport improvements or expansion of airport services. Depending on the location, the airport improvement fee is included in the cost of a traveler's airline ticket, in which case, the airline will forward the fee to the proper agency. However, in some locations the fee must be paid at the point of embarkation.
  • Residential Property: Renting or leasing certain types of residential properties may have a service charge affixed to the monthly rent. For example, in addition to the rental cost of a condo unit, the tenant may also be required to pay a condo fee, which is a service charge for general cleaning and maintenance of the building occupied. Also, online rental platforms that link renters to property owners, such as Airbnb, have service charges to cover the payment fees associated with the reservation. The service charge is usually calculated as a percentage of the subtotal, and applies to renters and owners.
RELATED TERMS
  1. Fee

    A fee is a fixed price charged for a specific service and is ...
  2. Impose

    The term impose refers to the act of placing a fee, levy, tax ...
  3. Brokerage Fee

    A brokerage fee is fee charged by a broker to execute transactions ...
  4. Bank Fees

    Bank fees are nominal fees for a variety of account set-up and ...
  5. Airport Tax

    An airport tax is a tax levied on passengers for passing through ...
  6. Finance Charge

    A finance charge is a fee charged for the use of credit or the ...
Related Articles
  1. Personal Finance

    Cut Your Bank Fees

    Find out how to get the bank to pay you for using their services, not the other way around.
  2. Tech

    Are Financial Advisor Fees Too High?

    Fees charged by financial advisors run the gamut. Are you getting a fair deal or paying too much?
  3. Investing

    Are Hidden Fees Eroding Your Participants’ Return?

    Plan sponsors need to know the fees associated with their plan to determine if they are reasonable.
  4. Investing

    3 Investment Fees That Are Negotiable

    Investment fees are a necessary evil but that doesn't mean they have to be overly costly. There are ways to negotiate some of the expenses down.
  5. Investing

    Don't Ignore Maintenance Fees When Buying Real Estate

    Buying an apartment or condo costs more than just the price of the unit. You will also have to pay maintenance fees which can often be hefty.
  6. Financial Advisor

    How to Know if Your 401(k) Plan Fees Are Too High

    Finding out how much you are paying for your 401(k) plan takes some research, but you should know exactly what you are getting for your money.
  7. Managing Wealth

    How Foreign Transaction Fees Work

    Using a credit card when you travel can be costly. Here's what you need to know about foreign transaction fees – plus tips on making purchases abroad.
  8. Personal Finance

    How are Discount Airlines so Cheap?

    Ever wonder what the fees are behind airfare prices? It's more complex than you think.
  9. Personal Finance

    5 Bank Fees You May Not Know About

    Banking regulations have recently changed and fees are following suit.
  10. Investing

    Investors: Your Fees Are Probably Too High

    The lower your fees, the higher your returns. Here's how to find out if you're paying too much for your investments.
RELATED FAQS
  1. What are some examples of sneaky credit card charges to watch out for?

    Review the most common sneaky credit card charges and learn how to protect yourself from unwanted charges from creditors ... Read Answer >>
Hot Definitions
  1. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  2. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  3. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  4. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  5. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  6. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
Trading Center