Sinking fund calculator
By Jude Wallis
A sinking fund deposit is the regular payment that grows into a target amount. Reaching $10,000 in 5 years at 6 percent takes $1,773.96 a year, less than a fifth of the target, because the deposits earn interest on the way.
Deposit per period
$1,773.96
Level deposits that accumulate to $10,000.00.
- Deposit
- $1,773.96
- Target
- $10,000.00
Put this on a class page: one iframe, free, for Google Sites, Canvas, WordPress or Notion.
On this page
The formula
is the target, the rate per period and the number of deposits. The fraction is the sinking fund factor: the deposit needed for one unit of target.
Interest does part of the saving
Five deposits of $1,773.96 add to in cash paid in. The fund still reaches $10,000, because the early deposits have four, three, two and one years to grow. Interest contributed the difference.
That is why the answer is not simply the target divided by the number of years. The longer the term and the higher the rate, the more of the target arrives from growth rather than from deposits.
It is the annuity future value factor, inverted
The future value of a stream of deposits and the deposit needed for a given future value are the same relationship read in opposite directions. Multiply a deposit by the annuity factor to get the target; divide the target by it to get the deposit.
That means the future value annuity calculator and this page are two views of one identity, and the sinking fund table lists the factors directly for common rates and terms.
Where sinking funds are actually used
Bond issuers set money aside each year so the principal is available at maturity rather than arriving as one crisis. Companies do the same for equipment they know they will replace, and a household does it whenever it saves monthly for a known future bill.
The second example is the household shape at a larger scale: $20,000 in 8 years at 5 percent needs $2,094.44 a year. A longer term and a lower rate, and still well under the $20,000 divided by 8 that a no interest plan would require.
What the deposit assumes
Equal deposits at the end of each period, a constant rate, and nothing withdrawn. It is the same arithmetic as any savings goal with a known date, which is what the savings goal calculator generalises. Sinking fund covers the term itself. This is educational material, not financial advice.
Worked examples
\$10,000 in 5 years at 6 percent
A fund must hold $10,000 after 5 annual deposits, earning 6 percent. What is each deposit?
- The five deposits grow for 4, 3, 2, 1 and 0 years respectively.
- The deposit that makes them total the target is 1773.96.
Each deposit is $1,773.96, and five of them grow into the $10,000 target at 6 percent.
A larger target over a longer term
$20,000 after 8 annual deposits at 5 percent.
- Eight deposits, each growing for one year less than the one before it.
- The deposit that reaches the target is 2094.44.
Each deposit is $2,094.44 to reach $20,000 in 8 years at 5 percent.
Dividing the target by the number of years
That approach ignores every dollar of interest the fund earns, and it oversaves. The real deposit for a $10,000 target at 6 percent over 5 years is $1,773.96, and the gap between the two methods widens with every extra year and every extra point of rate.
Common questions
What if deposits are made at the start of each period?
Each deposit then earns one more period of interest, so the required amount is slightly smaller.
How is this different from a savings goal?
It is the same arithmetic. A sinking fund is the name used when the target is a known future obligation.
Is this financial advice?
No. It is educational material for the sinking fund deposit identity.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.