How to Build Savings Quickly Using Sinking Funds

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What are Sinking Funds?

Do you ever wish you had that little pot of gold at the end of the rainbow? Of course you do. If they’re being honest, everyone does, myself included! But take a moment to close your eyes and imagine what it would be like if you could actually find that pot of gold. Now, open your eyes. Are you smiling? You should be, because today you will read about how you can create your own pot, or even pots, of gold.

Before you begin thinking, “This sounds either crazy, or too good to be true,” keep reading. The idea is that you are opening one or more accounts for a specific future purpose or replacement of a depreciated asset.

These are called sinking funds, and most online banks will allow you to set up such accounts with no minimum balance to maintain, no hidden fees, and they pay you interest at a lot higher rate than at most banks with physical branches in local communities.

Note: Don’t worry too much about the interest rates. They are higher for online banks vs traditional banks, but let’s be honest with ourselves here: we are talking about a whopping 0.50% better interest rate. This means for every $1,000 you have in savings, you earn an extra $5 every year. Yippee…


Money Tip: Right now you can open a CIT Savings Account with $100 opening deposit and earn 20x more than the national average.


Why Sinking Funds Work So Well

Sinking funds can help you save money simply by paying your bill from the funds you’ve accumulated in them while avoiding the high interest charges you would get from paying with a credit card. Basically, think of your sinking fund as a replacement for your credit card. 

They are Proactive

The number one habit of highly successful people is that they are proactive. They don’t wait for life to happen to them, instead they happen to life.

When you plan ahead and open a sinking fund for a future expense, you’re being proactive, and you are being awesome with your money!

Credit Cards are Reactive

If being proactive is a habit of the highly successful, then the opposite must also be true. Credit cards (when not used properly) are reactive. Any time you have an unexpeted expense and you don’t have the money, you end up going into debt using your credit card. No bueno.

Five Sinking Funds Should You Start With?

1. Vacation Fund

If you long for a trip to paradise but don’t think you’ll ever be able to afford it, a sinking fund could be the way you can finally fulfill that dream. Once you are able to meet your monthly financial needs, you can start putting a little “extra” money aside at the end of each month.

Related Post: The Top 80+ Side Hustles You Can Start Today

Another option is to fund your vacation sinking fund throughout the month whenever you notice a surplus in your bank account. The idea is that putting it into your sinking fund right away will prevent you from spending it on some other type of splurge in the meantime.

2. New Car or Car Repair Fund

Often people don’t think about saving for a new vehicle until their current one is beginning to show some age or wear and tear. However, at that point it is nearly too late. The time to begin saving for a new car is immediately after buying one. A new car sinking fund will also be able to help you prevent a future car payment

The average monthly car payment is $482. If you made this payment into your sinking fund for 20 months, you would have almost $10k to buy another car. This is why proactive people use them.

Saving for repairs on your car, new or old, is also a good idea that could prevent you from having to go into debt debt in order to fix your main mode of transportation.

3. Christmas & Birthdays Gifts Fund

This is one account you may have thought of right away when we first mentioned sinking funds because so many people have seen ideas on Pinterest and other social media channels that suggest you save a certain amount each week to end up with a tidy sum by Christmas for gifts.

But instead of socking cash away in a drawer or a jar, why not let it build interest and add up more quickly in your sinking fund savings account? Plus you’ll be less tempted to dig in there and “borrow” some to pay for something other than what your sinking fund is meant for.

4. Home Repair/New Appliance Fund

Even if you don’t take vacations, don’t have a car, and don’t celebrate holidays with many gifts, you might still need this sinking fund. Just about everyone has been hit with unexpected repair bills from a refrigerator that suddenly stops working, or a washing machine that quits. So you call a repair person and get it fixed, or purchase a new one.

But, where does that fit into your monthly budget? The answer is “nowhere” unless you’ve been saving for it in a sinking fund. Even those who rent instead of owning a home will likely have to shell out for new things around their home once in awhile, so a sinking fund for household repairs and upgrades is still a good idea for renters.

5. Medical Co-pay Fund

Unless you have been asleep for the past few years, you are surely aware of the rising costs of medical care. Not only are medical facilities and pharmacies charging more than ever before, but insurance premiums are going up as well. A sinking fund could be a way to save for the co-pay and/or deductible from an unexpected medical bill you might experience.

You never know when you’ll have to have an emergency surgery or end up going into the critical care clinic when you get sick on the weekend. Having money saved in a sinking fund will at least allow you some peace of mind so you can focus on your health instead of how to pay for these unexpected expenses.

We are all Different…

Chances are you are unique and awesome in your own special way, so why not set up a sinking fund for what makes you different? Here is a list of unique funds that may fit into your life as well. And, don’t you be judging just yet..these are ones Chris Peach has actually seen!

  • Travel Home Fund
  • Party Fund
  • Weightlifting Supplement Fund
  • Diet/Weightloss Fund
  • New Boobs Fund
  • Beer Brewing Fund
  • New Pool Fund
  • Vegas Fund
  • Boob Reduction Fund
  • Concert Fund
  • (Online) Dating Fund
  • Your ______ Fund 🙂

Theses are just some  ideas for different things you could open sinking funds, however the 5 listed above are a great place to start.

I’m sure you have other ideas going through your mind right now as well. But regardless of the reason or name of your fund, you should start a sinking fund or two today and create your own little pot of gold. You’ll be glad you did!

Open Your First Sinking Fund

How to Start a Sinking Fund

Starting a sinking fund is easy. But, your sinking fund must be different than your regular checking or savings account. It’s too easy to confuse  That defeats the purpose of having a sinking fund.

While any bank account will do, we like CIT Savings Builder.  CIT has one of the highest interest rates for online banks currently at 1.80%. That’s 20 times what the average savings account earns!

If you keep your money at a local bank, you might only earn 0.01% on your account balance. And, you don’t pay any hidden fees with CIT Bank.

Each month, you earn the highest interest rate by depositing at least $100 a month.

Easy enough, right?

So, if you’re ready to start saving for future expenses and earn more interest, follow these steps.

Step 1: Open a Savings Builder Account

The first thing you need to do is head to CIT Bank and open a Savings Builder Account.

It’s free and the entire process takes place online. You only have to enter your personal information and your account is open.

To verify your identity, CIT Bank requires you to enter your address, phone, address, and your social security number. Your taxpayer ID number works instead of a social security number too.

After entering your personal information, it’s time to link to your current bank account. CIT Bank will send two micro-deposits for you to verify. This process takes up to three business days. Once complete, you can transfer money between your Savings Builder and external accounts.

Step 2: Fund Your Account

Now, it’s time to save your first $100. This is the minimum initial deposit to open a Savings Builder account. And, it also means you earn one of the highest interest rates in online banking.

You can fund your account by digitally linking to your current account. Or, you can mail a paper check to CIT Bank.

Step 3: Setup Recurring Deposits

For sinking funds to work, you must deposit money each month. Recurring deposits are being proactive.

If you only add money when you remember too, you might not reach your savings goal in time.

With a Savings Builder account, schedule a single deposit of at least $100 each month. This way, you always earn the highest interest rate.

You might schedule your monthly deposit on one of your paydays. This way, you remember to pay yourself first. For larger savings goals, split the deposit with both of your paychecks.

Also, the sooner you deposit money into your account, the more interest you can earn. Higher interest payments is another advantage of using a high-yield bank account.

Step 4: Create More Sinking Funds

Nobody says you can only have one sinking fund. Some people use them for one-time expenses like getting married. Others use them for recurring expenses like car insurance or self-employment taxes.

For your non-monthly bills, it’s a good idea to create a sinking fund for each one. This is kinda like the envelope system. Except, it focuses on those infrequent large expenses.

So you don’t confuse the purpose of each sinking fund, make sure you give them a nickname. You might also leave a “memo” in the account transfer so you remember too.

Step 5: Withdraw Your Cash to Pay the Bill

When it’s finally time to pay the bill for your sinking fund purpose, withdraw your cash. Then, keep saving monthly in your sinking fund for the next time you have a similar expense.

How Sinking Funds Will Save You Money

Sinking funds are a great way to plan for large expenses. While life has some expensive surprises, not every large expense is a surprise.

If you currently charge your bills to a credit card and figure out how to pay for them later, you need to start a sinking fund today.

Sinking funds work best when:

  • You don’t pay any account fees or hidden fees for your sinking fund account
  • Deposit money every month
  • Only use your sinking funds for their intended expense

Like any savings plan, you must stick with it. Sinking funds are for specific expenses. You only withdraw from the fund when you need to pay a bill that matches the sinking fund.

For example, let’s say your sinking fund is for medical bills. Obvious “ok” reasons are planned surgeries and out-of-pocket costs for regular visits. But, you shouldn’t pay for a gym membership using this sinking fund. If you want to join a gym, create a special sinking fund to pay your annual dues.

What a Sinking Fund Is Not

Put money into a bank account for only one purpose might feel restrictive at first. But, that’s what makes sinking funds a pot of gold at the end of the rainbow.

Your sinking fund isn’t an emergency fund. And, it’s not a plain ol’ savings account either. If you think you can use it for any expense at any time, you’re not putting money into a sinking fund. Instead, you have another spending account.

Be intentional with why you’re creating a sinking fund and when you’re going to use the cash.

Even if you have to “trick” your mind into saving for a specific goal, you can also call your fund one of these names instead:

  • Targeted Savings Account
  • Dream Fund
  • Money Goal
  • “No Touch” Account

We all view money differently. So, find what it takes to motivate you to save for a certain goal and do it.

The Best Place to Keep Your Sinking Fund

Ideally, you should keep your sinking fund in a high-yield bank account. These accounts charge zero fees and earn the most interest.

Since you might be keeping your money in these accounts for at least a year, earning the most interest possible is a no-brainer. Online banks also make it easy to transfer or schedule payments when you must touch your cash.

Right now, high-yield savings accounts and money market accounts have the highest interest rates. And, you can withdraw your cash anytime you need it penalty-free. Currently, you should pick an online bank that pays

Brick-and-mortar banks may only pay 0.01% APY for your deposits. For a $1,000 deposit, you earn $1 in interest each year. And if you pay monthly account fees, you’re actually paying the bank to keep your money for you. In this case, you are actually better keeping your cash under your mattress.

Right now CIT Savings pays up to 1.80% APY with a minimum $100 deposits and does not charge any fees. So, you can do the math and see how much more you earn banking online.

Avoid Bank CDs for Sinking Funds

Also, don’t put your sinking funds into a CD. Even if it has a higher interest rate. The reason why is that your money is untouchable for the entire CD term. So, if you choose a 12-month CD, you can’t withdraw your cash for 12 months penalty-free. And, since you’re saving monthly, you open a new CD each month.

One year from now, you have 12 different funds for one savings goals with 12 different maturity dates. With a regular savings account, all your cash stays in one account.

Tips to Fund Your Sinking Fund

At first, it can be difficult to find money for your sinking fund. Especially if you’re living paycheck to paycheck or have a variable income. There are a few ways to find money for your sinking fund each month.

Transfer Money From Your Checking Account

After all, your checking account is a giant slush fund that pays all your bills. As bills come in, you pay them. At the end of the month, you either keep the extra money in your account. Or, you transfer it to your savings account.

Since your checking account is probably your most active bank account, start here. Only keep enough money in your checking account to pay your regular monthly bills. And, enough surplus cash to avoid overdraft fees.

Here are two other reasons not to keep extra money in your checking account:

  • You might spend it instead of saving it
  • Most checking accounts don’t earn interest

If you have extra money left over each month, transfer this cash into your sinking fund each month.

Even if you have a variable income, you can use this trick to cash flow your sinking fund.

Divide Your Paycheck Into Sinking Categories

Some people divide their entire paycheck into different sinking fund categories. You can even do this for your regular monthly expenses like utilities or your cell phone bill. This can force you to stick to your spending plan each month.

To keep it simple, you can also make sinking funds for your disposable income. That’s any cash left over after your monthly bills, investing, and charity giving.

Instead of just having your money sit in a savings account earning interest, give it a purpose. Not only does your cash earn interest. But, you now have more motivation to save more cash each month.

So you don’t accidentally spend this money, schedule the transfer on each payday. Most employers now use direct deposit to pay you. It takes a few minutes to setup automatic transfers.

Get a Side Hustle

Looking at your current checking account balance and paystubs are the two easiest places to start. After all, you’re improving on what you already have. No extra time or effort is required.

One of the next best options is to boost your income with a side hustle.

If you don’t need the extra cash to pay off high interest debt or topping off your emergency fund, put it in your sinking fund. And, don’t be afraid to also contribute your regular day job income into these sinking funds too.

Whether you freelance online or you drive for Uber, you can earn cash in your free time. Although putting your earnings in a sinking fund doesn’t give instant gratification, you reap larger benefits when you need to tap your sinking fund.

Reduce Spending and Save the Difference

Another way to put more cash into your sinking fund is to spend less money. Most of us can cut spending in some category each month. It can be cooking more meals at home, ditching cable tv, or something in between. Then bank your savings with a sinking fund.

When Sinking Funds Are Good

Sinking funds are good for saving for those large planned expenses. You know they’re coming, but you don’t know exactly when. For example, you might use sinking funds for any expense that’s at least three months from now. Or, even a really large expense that’s five years away like buying a house is a perfect sinking fund.

These are the advantages of having sinking funds:

  • Focus your savings on specific expenses
  • Reduce the risk of being reactive and going into debt
  • Prevents you from accidentally spending too much each month


Savings Tip: Your sinking fund is the perfect reason to use a CIT Savings Builder account that earns 20x the regular savings account rate.

When Sinking Funds Aren’t the Best Option

Sinking funds are awesome, but they’re not always the best way to save money. For example, you shouldn’t use them for unexpected expenses or for long-term goals like saving for retirement.

For life’s surprises, use an emergency fund or your general savings. This is money you set aside for such things so you don’t have to skip paying a monthly bill or pull from your retirement.

Sinking funds aren’t a good option for long-term goals like retirement. Instead, use your IRA and other investments like crowdfunded real estate that can earn more than 2.15% per year. You have decades to build a nest egg and investing helps you earn passive income that outpaces inflation.

  • Savings accounts don’t have the highest passive income potential investment
  • Must have a fully funded emergency fund before you can fund your sinking fund
  • Must choose a fee-free bank account to maximize sinking fund earnings


Sinking funds are quick and easy to start. They are a great way to focus on saving your extra income for short-term and medium-term goals. And, you can get paid to save money in the process using an online savings account.


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  • Car insurance; I pay in full every 6 months and a sinking fund makes it manageable

    • That’s a great example of a sinking fund that can help you with budgeting for large expenses. Awesome!

    • Nice work CarolJ. A great way to save and manage your insurance premium 🙂

  • Hi Peach! My husband and I are still planning on hiring you once his work picks up and we have the funds to do so, and let me tell you we can’t wait. I’m so done being broke haha! But anyways, since I have no idea how all of this works, how many accounts do financially responsible people have? And is it good to have them all in one bank? I always wonder how to save up for certain things but I didn’t know if having multiple accounts was what people did lol. Thank you, love your blog and read it everyday!

    • Hi Amanda! There isn’t a set number of Sinking Funds because everyone will always be a little different. We have 9 right now, but I have coached people with only 1-2 and some with 10+.
      The biggest take-away here is to have enough for you to simplify your savings so when ______ comes up, you have money for it. What are some things you can think of right now that are 100% coming up that will hurt your budget? Start there 🙂

  • We don’t call ours sinking funds, but we have used targeted savings accounts for a lot of different things in the past. Right now we are working on moving, which is something we set up a special savings account for a few months ago and started funneling money into. Now we are so glad we had that money put away for our move.

    • A “Moving Fund” is another Perfect Fund Cat!
      Where are you moving to? 🙂

  • A few ideas for sinking funds that we plan to open (just starting this whole thing!) are:
    1.Tax fund- My husband is in land sales and a 1099 employee so we need to set aside our taxes from each paycheck.
    2. Weddings Fund- I’m one of 33 first cousins so you be knowin’ wedding season is every season round here and we need to have money for travel and gifts.
    3. Boat fund- Because we will most likely be selling our current one to pay off debt and would like to have another in the future! 🙂

    • Those are great examples of sinking funds. A tax savings fund is one that I have too. 🙂

    • Hannah, I’m excited for your family! You are both taking incredible amounts of action towards your own financial goals and the future looks incredibly bright for you. It has been great working with you 1 on 1 and I can’t wait to see what is next for you both !

  • I have never heard of the phrase ‘sinking fund’ before, however we do use funds. We have * funds; an emergency car repairs fund, christmas fund, anniversary fund, holiday fund, new iPhone fund and bless others fund.

  • Does Capital One still have the subcategories under 1 checking or savings account? I heard they got rid of that.

  • Been doing this for years. Built an Excel Monthly Budget back during my pre-retirement days and I am still using it 7 years into retirement. Health Care, Appliance replacement, Car Insurance(including Deductible built in), Rent, car payments, and last but not least a “Fun Fund”. Remember, no robbing Peter to pay Paul!


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