The formula
How to calculate sinking fund
A sinking fund is money set aside on a schedule for a cost you can already see coming: a car replacement, a roof, corporation tax, a service charge. Unlike an emergency fund it has a date and an amount attached.
The calculation is an annuity in reverse. Instead of asking what a stream of payments grows into, it asks what payment reaches a known total by a known month, crediting interest along the way.
The calculator asks for:
- Amount needed — the bill you already know is coming
- Months until it is due
- Annual interest rate (%)
No submit button: type and the answer moves. Your inputs end up in the link, so the page can be shared already filled in.
Worked example
Take the figures the calculator starts with:
- Amount needed: 6,000
- Months until it is due: 24
- Annual interest rate: 4 %
That gives:
- Monthly contribution: 240.55
- Total you pay in: 5,773.19
- Interest doing the rest: 226.81
Reading the result
Watch the interest line. Over two years at 4% it barely registers; over ten years it can cover a tenth of the target, which is the argument for starting a large sinking fund early rather than saving harder later.
Where this goes wrong. Sinking funds fail for behavioural reasons, not mathematical ones. Money sitting in the main current account gets spent; a separate named pot, with a standing order dated the day after payday, is what makes the schedule hold.
A sinking fund is for something you know is coming and can price — an emergency fund is for what you cannot predict. Raiding the emergency fund for a planned expense is the mistake sinking funds exist to prevent.
Recalculate with the new figure and the months remaining; the contribution rises but the fund is not wasted. For costs with real uncertainty, such as building work, size the target 10–15% above the quote from the start.
It returns monthly contribution. With 6,000 amount needed, 24 months until it is due and 4 % annual interest rate, that comes to 240.55. Change any field and the figure moves with it.