Residual Interest

Your credit card company sends out your bill on March 1. You receive it on March 4, and it has a due date of March 25. It has an outstanding balance of $1,000, and your interest rate is 1.5% per month. You write a check on March 25 and drop it in the mail. It takes two days to get to the credit card company, and then probably another three days to process the check. The payment finally clears on March 30.

So, all told, the credit card statement was originally mailed on March 1 and the payment was officially received on March 30. In the meantime, a month's worth of interest had accrued. At 1.5% on a $1,000 balance, that equates to $15.

While the check you wrote for a $1,000 covered what the company said you owed, by the time everything crossed in the mail, the amount you owed went up by $15.

That little bit of interest (the amount accumulated interest during the interim between the statement getting sent out and the check getting cashed) represents residual interest. For credit cards, this situation can only come up when you carry a balance on your card (the grace period prevents it from happening when you pay your entire balance month to month).

Residual interest can come up with any interest-bearing account. It's any amount that accrues between statements. It's the little bit that adds up as the paperwork flies around.