A sinking fund is money you set aside little by little, on a fixed schedule, to cover a known future expense instead of charging it when it arrives. Rather than wondering how you will pay for a new car, a vacation, a roof replacement, or a holiday shopping season, you decide the total cost, pick a deadline, and work backward to find out exactly what transfer you need to make each month.
This calculator does that backward math for you. Type in the expense you are saving for, how many months you have, the interest your savings account earns, and any money you have already put aside. It returns the monthly amount you need to set aside, the total you will deposit, and the interest the balance earns along the way. The result turns a vague "someday I'll save" goal into a concrete line item you can drop straight into your monthly budget.
How to Use
- Enter the Savings Target — the total future cost of the expense. If you expect prices to rise, add a little buffer; this calculator uses the number you give it as the amount you want to have on the due date.
- Set your Time to Save in months. 36 months means you have 3 years; 12 means one year. The longer the runway, the smaller each monthly contribution.
- Type your Annual Interest Rate (APY). If the money sits in a high-yield savings account earning around 4–5%, enter that. If you keep it in a cash envelope or a checking account earning nothing, enter 0.
- Add Already Saved if you have already started the fund. The calculator grows that existing balance alongside your new contributions so you do not double-count it.
- Read the result card: Monthly Amount to Set Aside is the number that matters — that is the recurring transfer. Total You Will Deposit and Interest Earned show how much of the final target comes from you versus from the account.
The math is the reverse of a future-value annuity: instead of starting with a monthly payment and projecting a balance, you start with the target balance and solve for the payment. That is what makes a sinking fund different from a generic savings projection — it always works backward from the thing you are actually trying to pay for.
The Sinking Fund Formula
Each monthly deposit earns interest from the moment it lands in the account until the target date. The future value of a stream of end-of-month deposits is:
FV = P × ((1 + r)ⁿ − 1) / r
Where FV is your target, P is the monthly contribution, r is the monthly rate (annual APY divided by 12), and n is the number of months. To find the contribution, rearrange:
P = FV × r / ((1 + r)ⁿ − 1)
Worked example: a $25,000 car in 36 months at a 5% annual yield. The monthly rate is 0.004167 and n = 36. Plugging in gives a monthly contribution of roughly $656. Over 36 months you deposit about $23,616, and interest earned adds the remaining $1,384 to reach the full $25,000. If the account earns 0%, the interest line disappears and the monthly contribution simply becomes $25,000 ÷ 36 ≈ $694.44 — the zero-rate fallback the formula uses when r is 0, because dividing by r would otherwise be undefined.
If you already have money saved, that starting balance grows on its own over the horizon, so the contribution you need each month is lower. The calculator first subtracts the grown starting balance from the target, then solves for P on the remainder.
Why Sinking Funds Beat Credit Cards
The alternative to a sinking fund is financing the expense when it hits. A $25,000 car on a 7% auto loan costs more than the sticker price because you pay interest to a lender instead of earning it yourself. With a sinking fund, the interest flows the other direction — into your account — and you walk in able to pay cash.
The same logic applies to smaller, irregular costs people usually absorb by accident: annual subscriptions, car maintenance, a new appliance, holiday gifts, a deductible you have to cover after a claim. Naming each of these as its own mini sinking fund — with its own target and deadline — keeps a single month from being derailed by three surprises landing at once. Budgeters often keep these in separate accounts or separate "envelopes" so the car fund is not accidentally spent on the vacation.
Examples
Example 1 — Saving for a car. You want $25,000 for a reliable car in 3 years. You have $0 saved, and your high-yield account earns 5% APY. Enter target $25,000, 36 months, 5%, $0 saved. The monthly contribution is about $656, total deposits around $23,616, and interest roughly $1,384. At the end of 36 months the account holds the full $25,000.
Example 2 — A shorter vacation horizon. You want $5,000 for a trip in 18 months and expect 4% APY. The monthly contribution works out to about $270, you deposit roughly $4,860 of your own money, and interest adds about $140. The shorter timeline means interest contributes very little, so the burden is almost entirely your own saving.
Example 3 — A large long-horizon goal. You are setting aside $1,000,000 over 120 months (10 years) at 5% APY. The monthly contribution is about $6,440, total deposits near $772,800, and interest roughly $227,200 — showing how, over a long horizon, compounding does most of the heavy lifting and your out-of-pocket cost is well below the target.
Example 4 — Starting with an existing balance. You already have $5,000 saved toward the same $25,000 / 36-month / 5% goal. That $5,000 grows to about $5,800 over the horizon, so the required monthly contribution drops to roughly $495 instead of $656. Tapping the Already Saved field is the easiest way to lower the monthly number.
FAQ
What is a sinking fund?
A sinking fund is a dedicated sum of money you build up on a schedule to pay for a known future expense, rather than borrowing when the bill arrives. You set a target amount and a deadline, then work out the monthly contribution needed to reach it. It is the opposite of carrying a balance on a credit card or taking out a loan.
How is the monthly contribution calculated?
The calculator uses the future-value-of-an-ordinary-annuity formula rearranged to solve for the payment: P = FV × r / ((1 + r)ⁿ − 1), where FV is your target, r is the monthly interest rate, and n is the number of months. If the interest rate is 0, it simply divides the target by the number of months.
Should I use a sinking fund for every expense?
Use it for known, predictable, medium-to-large costs you can plan in advance — a car, a vacation, a down payment, annual insurance premiums, home repairs, holiday spending. It is less useful for true emergencies you cannot time; those belong in a separate emergency fund you do not have a deadline for.
What interest rate should I enter?
Enter the APY of the account that will hold the money. A high-yield savings account might pay 4–5%; a cash envelope or checking account pays 0%. If you are unsure, run two scenarios — one at your current rate and one at 0% — to see how much interest actually helps on your timeline.
How is a sinking fund different from a savings account or a budget category?
A regular savings account just holds money. A sinking fund is a goal with a deadline and a computed monthly amount, usually tracked as its own line in a budget or its own account. This calculator turns the goal into the exact recurring transfer you need to make.
What if I already have some money saved?
Enter it in the Already Saved field. The calculator projects that balance forward with interest and subtracts it from your target, so your required monthly contribution is lower. Without that field, you would over-save and reach the target early.
Is a sinking fund the same as an emergency fund?
No. An emergency fund covers unexpected, unpredictable costs — a medical bill or a sudden job loss — and stays liquid with no deadline. A sinking fund covers a known, planned expense you have already decided on and dated. Keeping them separate prevents planned savings from being raided (or accidentally spent on the wrong goal).
Disclaimer
This sinking fund calculator is provided for informational purposes only and does not constitute financial, investment, tax, or accounting advice. Estimates are based on the inputs you enter and the standard future-value annuity formula; actual account yields, fees, compounding frequency, and inflation may differ. Always confirm terms and rates directly with your bank or a qualified financial professional before relying on these figures for a major purchase.