Bank Service Charge Expense

Bank service charge is a monthly fee charged by the bank for the use of its services. This fee is often charged by the bank only when the average monthly balance in a checking account falls below a specified amount. The bank sends a debit memorandum explaining the charge noted on the bank statement. This fee or expense is identified on the bank statement by a symbol such as SC. In order to record such transactions, businesses post a journal entry in its books of accounts in which they debit bank service charges and credit bank account.

Following are the ways through which a bank charges a service fee from its customers for providing them with different services:

• Bank Account Maintenance Fees: This fee is charged by a bank from their customers on a monthly basis for simply having an account in the bank.
• Bank Charges for Insufficient Funds or Overdraft: Banks typically charge a fee from their account holders if any withdrawal or charge is made that turns the balance of their bank accounts negative. Many banks provide their customers with overdraft protection. This means that when an account holder performs a transaction whose amount is more than what is in the said account holder’s bank account then the bank will turn the balance of the account negative instead of declining the transaction.
• Bank Fees for Overdraft Facility: Overdraft is a facility that is provided by banks to its account holders when they withdraw over and above their account balance. The bank charges the customer for providing this service. Banks adopt different charging policies for authorized and un-authorized overdrafts. As the competition is increasing, banks are reducing their interests even to zero percent. Some banks are also charging a fixed overdraft fee irrespective of the size of the overdrawn amount.
• ATM Withdrawal Charges: Banks also provide their customers with the facility to use the ATM of another bank to withdraw money. This facility is very useful for travelers in case they are unable to find an ATM machine at their bank. But for this facility, the bank charges a fee from its account holders.
• Wire Transfer Bank Fees: In case a customer wants to wire transfer funds in or out of the account then the bank charges a fee from its account holders for using this facility. These charges are mostly fixed but they may differ considering the volume of the transaction.
• Bank Statement Charges: Many banks charge a nominal fee for issuing paper statements to their account holders on a monthly basis. This fee is usually just a couple of dollars. Nowadays, many banks offer online banking so there is really no need to get traditional bank statements on a monthly basis. So, you should be able to easily cancel monthly paper statements and avoid having to pay fees for this facility.

Foreign Transaction Charges: These are charges which many banks deduct from their account holders for making transactions in a foreign currency. Banks charge their account holders a fee as sometimes it can be significantly inconvenient for processing transactions performed in a foreign currency when compared to processing transactions performed in their home currency. Many credit cards do not charge foreign transaction fees. So, it would be better to use your credit card instead of your debit card when you need to make transactions in a foreign currency.