Sinking Fund Calculator

The idea is old and sensible: if you know you will need a large sum on a certain date, put away a small amount regularly until you reach it, so that you never have to find the whole sum at once or borrow it. Businesses use sinking funds to replace equipment or to repay bonds. At home they are used for cars, school fees, a roof, insurance premiums or a wedding. The mathematics is the same as for any series of equal deposits that earn interest.

The three questions

The Find menu offers three modes. Deposit needed each period starts from a goal, a time and a rate and returns the amount to put aside. Amount saved after the time starts from a deposit and a time and returns what you will have. Time to reach the goal starts from a deposit and a goal and returns the number of deposits. All three use the same formula, balance = start × (1 + i)^n + deposit × ((1 + i)^n − 1) ÷ i, where i is the rate for one period and n the number of deposits.

A worked example

The first sample asks for 5,00,000 in 5 years at 7% a year with monthly deposits at the end of each month and no starting balance. The answer is a deposit of 6,983.93 for 60 deposits. In total you put in 4,19,035.96 and the interest earned is 80,964.04. The yearly table shows the balance at the end of year one as 86,548.98, year two as 1,79,354.59 and year three as 2,78,869.13. The second sample starts with 20,000, deposits 8,000 a month at 6%, and wants 3,00,000: it reaches the goal after 32 deposits, about 2.67 years, having deposited 2,56,000 and earned 24,000 in interest.

Start or end of the period

If you deposit at the end of each period, the first deposit earns no interest in the period it is made. If you deposit at the start, every deposit earns interest for one extra period, and the final balance is higher by a factor of (1 + i). For monthly deposits at 7% the difference is about 0.6 percent of the final balance. Choose the option that matches how your standing instruction works; for a salary-day transfer made the same day each month, the start of the period is usually the better description.

Choosing the rate

Use the rate you actually expect to earn, after any tax if you can estimate it. A savings account, a recurring deposit and a debt fund can pay quite different rates, and the longer the period the more the difference counts. If you are not sure, run the calculation twice with a cautious and an optimistic rate and plan on the cautious one. If the goal is price-sensitive, raise it by the inflation you expect.

Edge cases

A rate of zero is allowed and then the deposit is simply the goal minus the starting balance, divided by the number of deposits. If the starting balance already exceeds the goal, the deposit needed is zero and the time is zero. Years are converted into a whole number of deposits, so 2.5 years of quarterly deposits is 10. The page shows an error rather than an answer if a value is missing or not positive where it has to be.

Limits

The page assumes the rate stays constant and that interest is credited at every deposit. Real accounts credit interest at their own intervals and rates can change. Income tax on the interest, bank charges and inflation are not included. If you will miss deposits, rerun the page with the new schedule.

Related tools

• Emergency Fund Calculator sets the target for the savings that have no particular date.
• Education Savings Calculator applies the same idea to rising tuition costs.
• RD Calculator shows what a bank recurring deposit of a fixed instalment would pay.
• FD Calculator values a single deposit if you can put the money in all at once.