What Is a Sinking Fund?
A sinking fund is money set aside on a regular schedule so you accumulate a specific amount by a future date. Businesses use sinking funds to retire debt or replace equipment; individuals use them to save for a car, a wedding, or a down payment. This calculator tells you exactly how much to deposit each period to hit your goal, accounting for the interest your deposits earn along the way.
How to Use It
Enter your target amount (the future value you want), the annual interest rate your savings earn, the number of years until the goal, and how often you contribute. The calculator returns the required deposit per period, the total of all contributions, and the interest earned.
The Formula Explained
The payment formula is $$PMT = FV \cdot \frac{r}{(1+r)^{n}-1}$$, where \(FV\) is the future value goal, \(r\) is the interest rate per period (annual rate ÷ periods per year), and \(n\) is the total number of payments (years × periods per year). The denominator is the future value factor of an ordinary annuity; dividing the goal by it isolates the level payment that grows to that goal.
Worked Example
Suppose you want $10,000 in 5 years, earning 6% annual interest, contributing monthly. Then \(r = 0.06 \div 12 = 0.005\) and \(n = 5 \times 12 = 60\). $$PMT = 10{,}000 \times \frac{0.005}{(1.005)^{60}-1} = \frac{50}{0.348850} \approx \mathbf{\$143.33}$$ per month. Over 60 months you contribute about $8,599.80, and interest supplies the remaining ~$1,400.
FAQ
Does this assume payments at the start or end of the period? It uses an ordinary annuity (payments at the end of each period), the standard convention.
What if the interest rate is 0%? The calculator simply divides the target by the number of payments.
Can I change the deposit frequency? Yes — choose monthly, quarterly, semi-annual, or annual contributions.
