There are a couple of factors that can make varchar take more space than char of the same length. First is very short strings in a small column. For example, storing "AA" in char(2) takes 2 bytes, but storing it in varchar(2) takes 4 bytes (because of the length data added to variable-length columns).

The other is ANSI padding. It can do weird things to trailing spaces in varchar() columns. Check out this for details: http://msdn.microsoft.com/en-us/library/ms187403.aspx

For fixed-length data, or for very small columns (up to about 10 characters), I use char() instead of varchar(). Unless the data will much more often be very short than very long. Partially, this is due to fixed-length columns not resulting in page splits when updated to longer values. Page splits often result in extra disk allocation being needed, even if only a small percentage of the pages are actually "full", plus they can result in performance issues in busy databases.