Sinking Fund Calculator
Calculate how much to save each period to reach a future savings goal.
For vacation funds, car replacement, emergency repairs, and irregular big expenses.
What Is a Sinking Fund? A sinking fund is a dedicated savings account — or a mentally separated bucket of money — set aside specifically for a predictable future expense. Unlike an emergency fund (which covers surprises), a sinking fund covers things you know are coming but don’t happen every month: car registration, annual insurance premiums, holiday gifts, a vacation, replacing the water heater, new tires, or any other lumpy irregular cost.
The Origin of the Term The term “sinking fund” comes from corporate finance and government bond management, dating back centuries. When a government or company issues bonds, it sometimes creates a sinking fund — setting aside money periodically to ensure the debt can be repaid when it matures. The idea is that the debt “sinks” (decreases) as money accumulates in the fund. Today, personal finance educators like Dave Ramsey and the YNAB (You Need A Budget) methodology have popularized the concept for household budgeting.
The Math: Sinking Fund Payment Formula The sinking fund payment is the inverse of the future value of an annuity. Instead of asking “what will my deposits grow to?”, you ask “how much must I deposit each period to reach a known future value?” The formula: PMT = FV times r divided by ((1+r)^n minus 1), where r is the periodic interest rate and n is the number of periods. If the interest rate is zero, it simplifies to PMT = FV / n.
Why Sinking Funds Are Psychologically Powerful Saving $500/month toward a $6,000 car repair fund feels achievable. Scrambling to find $6,000 when the transmission fails is a financial crisis. Sinking funds convert emergencies into planned expenses. They reduce financial stress significantly because you’re never caught off guard.
Separate Accounts for Each Fund Many personal finance experts recommend opening separate high-yield savings accounts for each major sinking fund — one for vacation, one for car replacement, one for home repairs. This visible separation makes it harder to raid the car fund for an impulse purchase, and many online banks allow multiple savings buckets with no fees.
Interest Makes a Real Difference In a 4–5% high-yield savings account, a 2-year sinking fund earns meaningful interest. For a $10,000 goal over 24 months at 4.5% annual interest, you need about $398/month instead of $417/month — the interest contributes over $450 toward your goal. Small amounts add up over time.