Sinking Fund Calculator
Estimate the amount of money you need to save regularly to reach a specific financial goal using our online calculator. By inputting key parameters such as the desired future value, time period, and interest rate, you can calculate the regular savings amount required to accumulate the necessary funds.
What is a Sinking Fund?
A sinking fund is an account that is set up with the objective of saving a target amount of money as a means of ensuring future financial obligations can be serviced, or debt can be repaid. The sinking fund payment is the total cash reserves that need to be saved each month to achieve the target sinking fund.
Sinking Fund Formula
This sinking fund calculator is based on the following formula:
i PMT = FV |
Where:
PMT = Periodic payment,
FV = Future value (amount),
i = Interest rate per compounding period,
n = Total number of payments.
*Note that the payments are made at the end of each period.
Sinking Fund Calculation
Example 1: A company needs to accumulate a sinking fund of $50,000 over the next three years. The payments are put aside at the end of every quarter and earn 6% interest that is compounded quarterly. The required sinking fund payment can be calculated as follows:
Solution: The annual interest rate in decimal form is 6 / 100 = 0.06, i = (0.06 / 4) = 0.015, n = (3 × 4) = 12, using the formula above, we get:
PMT = FV × i / ((1 + i)n - 1) = 50,000 × (0.015) / ((1 + 0.015)12 - 1) = $3,834
Example 2: A company needs to accumulate a sinking fund of $100,000 over the next five years. The payments are put aside at the end of every quarter and earn 6% interest per year. The required sinking fund payment can be calculated as follows:
Solution: The annual interest rate in decimal form is 6 / 100 = 0.06, i = (0.06 / 12) = 0.005, n = (12 × 5) = 60, using the formula above, we get:
PMT = FV × i / ((1 + i)n - 1) = 100,000 × (0.005) / ((1 + 0.005)60 - 1) = $1,433.28
Sinking Fund Calculator Exmaple
Certainly! Here's an example of a Sinking Fund calculator that calculates the periodic deposit required to reach a future goal based on a given interest rate and time period:
Let's assume we want to save $10,000 in 5 years and the annual interest rate is 4%. We can use the sinking fund formula to calculate the periodic deposit needed.
The sinking fund formula is given by: Deposit = (Future Value * Interest Rate) / ((1 + Interest Rate) ^ Time Period - 1)
Using the given information, we can calculate the periodic deposit as follows:
Copy CodeFuture Value: $10,000
Interest Rate: 4% per year
Time Period: 5 years
Deposit = ($10,000 * 0.04) / ((1 + 0.04) ^ 5 - 1)
Deposit = $2,014.76
Therefore, to accumulate $10,000 in 5 years with an annual interest rate of 4%, you would need to make a periodic deposit of approximately $2,014.76.
Please note that the value calculated here is rounded for clarity and may not reflect exact calculations.
