What this calculator does
A sinking fund sets aside money regularly to meet a known future obligation: a bond maturity, an equipment replacement, a building repair. The calculation works backwards from the target to the deposit each period.
Time does most of the work. Reaching $150,000 in three years takes $3,987.18 a month, while ten years takes only $1,073.41, and the longer plan earns $21,190.66 of interest against $6,461.47 for the shorter one.
The formula
The target is divided by the future value factor for an ordinary annuity at the given rate and number of periods, which gives the deposit each period.
| Term | Meaning |
|---|---|
| Sinking fund | Money set aside regularly to meet a known future obligation. |
| Future value factor | What one unit deposited each period grows to by the target date. |
| Total contributed | The sum of all deposits, with the balance of the target coming from interest. |
The inputs explained
| Field | What to enter |
|---|---|
| Target amount to accumulate ($) | The amount to accumulate by the target date. |
| Annual interest rate (%) | The annual interest rate earned on the fund. |
| Compounding periods per year | Compounding periods per year, which is also how often deposits are made. |
| Years until the target is due | Years until the target is due. |
When to use it
Funding a bond repayment
Bond covenants often require a sinking fund to build up the redemption amount.
Planning an equipment replacement
Setting aside monthly avoids a large unbudgeted outlay when the asset fails.
Building a body corporate reserve
Long-term maintenance funds work exactly this way, sized against a forecast schedule.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How much does a longer horizon reduce the deposit?
The same target over three time horizons.
| Years to target | Payment per period | Interest earned |
|---|---|---|
| 3 years | $3,987.18 | $6,461.47 |
| 5 years | $2,320.30 | $10,781.78 |
| 10 years | $1,073.41 | $21,190.66 |
Questions
How is this different from a loan payment?
It is the mirror image. A loan payment pays down a balance that exists now; a sinking fund builds up a balance that must exist later. The same annuity mathematics runs in opposite directions.
Why does starting earlier help so much?
Because interest compounds on the accumulating balance. Over ten years the fund earns enough that deposits cover only about 86 per cent of the target, where over three years they cover 96 per cent.
What rate should be assumed?
Something conservative and consistent with where the money will actually sit. A sinking fund exists to meet a known obligation, so it is usually held in low-risk instruments, and assuming an optimistic return risks a shortfall.
What if the target changes?
Recalculate with the remaining time and the balance already accumulated. Long-horizon funds, particularly for building maintenance, normally get reviewed every few years for exactly this reason.
For the value of a payment stream, see the annuity due calculator. For how a lump sum grows instead, see the compound interest calculator.