How a sinking fund reaches a fixed target
A sinking fund works backwards from a goal. You know the amount you need and the date you need it by, so the question is how much to put aside each period so that those deposits, plus the interest they earn, add up to exactly the target. Each deposit compounds for the remaining periods, and the earliest deposits do the most work because they have the longest to grow. Solving for that single repeating payment is the entire job of the formula below — it converts a future goal into a steady, affordable schedule.
The sinking fund formula
Deposit = FV × i ÷ ((1 + i)ᴺ − 1)
where FV = the target future amount, i = the interest rate per period, and N = the number of deposits. The term(1 + i)ᴺ − 1 is the accumulation factor: how much a stream of $1 deposits grows to over N periods. Dividing the rate-scaled target by it gives the level payment needed.
What makes this calculator different
- It solves for the deposit, not the future value. You give it the target and it returns the recurring payment, rather than making you guess a deposit and check the result.
- It splits total deposits from interest earned. See how much of the target comes from your own contributions versus the compounding that does the rest of the work.
- It supports any deposit frequency. Compare monthly, quarterly, or annual schedules to find one that fits your cash flow.
Frequently asked questions
What is a sinking fund and what is the formula?+
A sinking fund is money set aside on a regular schedule so that it grows, with interest, to a known future amount. The recurring deposit is found by rearranging the future-value-of-an-annuity formula: deposit = FV × i ÷ ((1 + i)ᴺ − 1), where FV is the target, i is the interest rate per period, and N is the number of deposits. In words, you take the target, scale it by the periodic rate, and divide by the accumulation factor that says how much a stream of $1 deposits grows to. That single payment, made every period, compounds up to exactly the amount you need.
How is this different from an ordinary savings goal?+
It is the inverse problem. A future-value calculation starts with a known deposit and asks how much it grows to; a sinking fund starts with a known target and solves for the payment that compounds to it. So instead of answering “if I save $200 a month, what will I have?”, it answers “to reach $50,000, what must I save each month?”. The same compounding math underlies both — they just rearrange to solve for different unknowns. If you would rather work the other direction, use our savings goal calculator.
Why do companies use sinking funds?+
Businesses use sinking funds to set aside cash steadily for a large, predictable future obligation rather than scrambling for the money all at once. The classic case is repaying a bond: a firm makes regular contributions so the principal is funded by maturity, which lowers the risk of default and reassures lenders. They are also used to accumulate money to replace aging equipment, vehicles, or facilities. By spreading the burden across many periods, a sinking fund turns a single large expense into a manageable schedule.
Do more frequent deposits change the amount?+
Yes, slightly. Depositing monthly instead of annually creates more compounding periods, so each individual deposit can be a little smaller to reach the same target. The effect is real but usually modest, because the extra interest earned within a year is small relative to the total. Switching frequency also changes the per-period rate and the number of deposits, both of which feed into the formula above. The calculator handles any frequency, so you can compare schedules directly.
Is the interest guaranteed?+
No. The calculator assumes a single fixed interest rate that applies every period, which keeps the math clean but is an idealization. Actual returns on whatever you hold the money in — a savings account, bonds, or other investments — will vary over time and may be higher or lower than your assumption. A lower realized rate means you would fall short of the target, while a higher one would overshoot it. Treat the result as a planning estimate, not a promise.
Disclaimer: This calculator is foreducation and illustration only. It assumes a fixed interest rate applied every period, which is a simplification; actual returns vary and your results will differ. Nothing here is investment, tax, or financial advice.