Enter a goal savings amount, annual interest rate, compounding frequency, and a number of periods. The calculator will evaluate and display the required monthly payment to reach the savings goal.

Sinking Fund Formula

The following formula is used to calculate the periodic payment amount to reach a savings goal.

PMT = FV * i / (1+i)^n – 1

  • Where PMT is the periodic payment
  • FV is the savings goal amount
  • n is the number of periods
  • I is the annual interest rate or return

Sinking Fund Definition

A sinking fund is a financial term that describes a periodic payment to a savings fund in order to reach a certain savings amount. In other words, if you want to save 30,000 over 5 years, the sinking fund would be the amount you need to contribute each year or period.

Sinking Fund Example

How to calculate payments on a sinking fund?

  1. First, determine the savings goal amount.

    Determine the total final value of the savings goal.

  2. Next, determine the number of periods you have to save.

    This is most often measured in years.

  3. Next, determine the average return on the savings.

    The stock market historically returns roughly 10% per year.

  4. Finally, calculate the monthly payments.

    Calculate the monthly payments to the sinking fund needed to reach the final value.

FAQ

What is a sinking fund?

A sinking fund is a periodic payment into an investment that is required to reach a certain goal at a certain time.

sinking fund calculator
sinking fund formula