Sinking funds explained with a 12-month UK example

Our example couple pay these costs once or twice a year. The figures are illustrations; swap in your own.

The TV licence is £180 a year from April 2026. Everything else will vary by household, which is why it is worth checking last year's statements for the real amounts.

Say they start in January with nothing saved and put £245 into one savings pot on the 1st of every month, paying each bill from it when due:

Over the year the total is exactly right: £2,940 in, £2,940 out. But the holiday falls before enough has built up, so the pot runs £260 short in August and is still overdrawn in September. Because the year ends at £0, the same shortfall happens again next year unless something changes. This timing gap is the main reason people say sinking funds "did not work" for them.

In the first year, work out each fund separately as the cost divided by the number of months until it is due, then drop to the normal monthly amount once it has been paid:

That means saving more in the first few months (£487 in January to March), falling as each bill is paid until it settles at £245. If that is not affordable, use one of the next fixes. The savings goal calculator works out the monthly figure for any amount and date.

• Seed it once. If the pooled pot starts with the largest shortfall (£260 in our example), it never goes below zero and £245 a month works forever. A tax refund, bonus or a month of tighter spending can provide the seed money.
• Shrink or move a big item. A cheaper or later holiday in the first year gives the fund time to catch up.
• Think twice about paying monthly. Spreading car insurance into monthly instalments removes the lump sum, but insurers often charge interest for it, so it can cost more over the year. Saving for an annual payment is usually cheaper once your fund is established.
• Do not borrow from your emergency fund. It is there for the unexpected, not for bills you knew were coming. If you do dip in, pay it back first.

A single shared pot is simpler to set up, but as the table shows, it can hide a shortfall until a bill arrives. Separate pots, one per bill, make it obvious whether each one is on track, and many UK banks and building societies let you open named pots or multiple easy access accounts for free.

A middle way is two or three pots grouped by type: car, home and annual bills, and celebrations and holidays. Keep the money in an easy access account that pays a decent rate, separate from your current account. Our savings accounts guide explains how to compare rates, and sinking fund categories lists costs people often forget.

Once a year, ideally when the biggest bill arrives, check each fund against what the bill actually cost and adjust the monthly amount. Prices for insurance and holidays in particular change from year to year. Add new items as they come up, such as a pet, a new car or school trips.

Set the transfer for the day after payday and include the total in your budget planner as a fixed bill. If you like seeing progress day by day, SYM tells you how much to put aside today and logs it with one tap.