A stepped tariff, also known as a tiered fee schedule, is a kind of fee schedule which is sometimes used in the pricing of various goods and services, including banking fees. Swiss banks often use stepped tariffs for custody fees and brokerage fees.
Important: The meaning of the term stepped tariff may differ from the definition provided here when it is used in the context of taxes and some other applications.
A stepped tariff has more than one separate tiers. Each tier has a certain rate or fee attached to it. The rate attached to a tier applies to the full amount that is subject to the fee, and not just to the portion which falls within the tier. In most cases, the higher the tier is, the lower the fee is. In other words: The bigger the amount on which you are paying fee is, the bigger the discount you get.
Example:
A bank charges an annual custody fee of 0.3 percent for deposited securities worth up to 50,000 francs. The same bank charges a 0.2 percent custody fee if the value of deposited assets is between 50,000 and 100,000 francs, and a 0.1 fee if the account exceeds 100,000 francs.
0-50,000 francs: 0.3 percent annual custody fee
50,000-100,000 francs: 0.2 percent annual custody fee
More than 100,000 francs: 0.1 percent annual custody fee
So, in this example, a customer with 50,000 francs in assets will pay an annual safekeeping fee equal to 0.3 percent of their custody account’s value, or 150 francs per year (CHF 50,000 * 0.3%). A customer with 100,000 francs of securities would pay 200 francs (CHF 100,000 * 0.2%), while a customer with 110,000 francs would pay just 110 francs (110,000 * 0.1%).
So, the amount you pay in fees depends on which tier your total account balance falls into. If a stepped tariff has lower rates for higher tiers, then a customer with a larger account balance may effectively pay lower fees than a customer with a smaller account balance.
Swiss banks often use fee schedules based on stepped tariffs for their custody fees, brokerage fees, and other investment fees.
Difference between a stepped tariff and a staggered tariff
A staggered tariff is another kind of fee schedule which also uses different rates attached to different tiers. The difference is that in a staggered tariff, each rate only applies to the portion which falls within the corresponding tier, and not to the entire amount (as is the case with a stepped tariff). So, in a staggered tariff, the higher the total amount is, the higher the total fee you pay will be. In most cases, a stepped tariff works out cheaper, because the maximum discount applies to the total amount, instead of only part of it.
More on this topic:
Staggered tariffs explained
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