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Sinking Fund Payment Calculator

Enter the target amount, rate per period, and number of periods to find the required deposit.

How it is calculated

Enter the target amount FV, the interest rate per period in percent and the number of deposit periods n. The rate and the periods must use the same time unit: a monthly rate with a number of months, or an annual rate with a number of years. The deposit is PMT = FV × i ÷ ((1 + i)n − 1), with i = rate ÷ 100. It assumes equal deposits made at the end of each period, with interest credited every period. With a rate of 0 the tool simply divides FV by n. It also shows total deposits (PMT × n) and the interest earned, which is FV − total deposits. Fees, taxes and rate changes are not modelled.

Worked example

The goal is 100,000 in 60 months, using an account that pays 0.5% per month. i = 0.005. Growth factor: 1.00560 = 1.34885. Divide: PMT = 100,000 × 0.005 ÷ (1.34885 − 1) = 500 ÷ 0.34885 = $1,433.28 a month. Total deposits: 1,433.28 × 60 = $85,996.81. Interest earned: 100,000 − 85,996.81 = $14,003.19. Without interest the deposit would be 100,000 ÷ 60 = $1,666.67.

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Common mistakes

  • Entering an annual rate (such as 6) together with a number of months. The rate must be per period, so 6% a year paid monthly is 0.5 per month.
  • Dividing the annual rate by 12 and then also treating it as a yearly rate elsewhere. Keep one unit: either 0.5 with 60 months or 6 with 5 years and yearly deposits.
  • Expecting deposits at the start of each period. This formula assumes end-of-period deposits, so beginning-of-period deposits would need a slightly smaller payment.
  • Assuming the rate stays fixed for years. A change in the actual rate means the real balance will differ from the target.
  • Forgetting inflation or fees. The target is a nominal amount, so a purchase that gets more expensive may need a higher FV.

Sources

About this calculator

A sinking fund is a reserve built up through regular periodic deposits so that a known future obligation — bond principal at maturity, equipment replacement, a balloon payment — can be paid off without a cash-flow shock when it comes due. The required deposit is found by solving the future value of an annuity formula for the payment: PMT = FV × i ÷ ((1 + i)^n − 1), where FV is the target amount, i is the rate per period, and n is the number of periods.

Companies use sinking funds tied to bond issues to reassure investors that redemption money is being set aside gradually rather than relying on refinancing at maturity, while municipalities and property managers use the same mechanism to fund long-term capital replacements like roofs or roads. Name the amount you need, the rate per period and the number of periods, and it finds the regular deposit that builds the fund to that target.

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