How to set up a sinking fund and save towards a goal

woman with cute dog

If you want to save money towards something specific then maybe you should give sinking funds a try.

What is a sinking fund?

A sinking fund is a strategic way of saving where you set aside a little bit of money each month for a specific planned expense.

It can help you save for:

  • Car repairs
  • A vacation abroad
  • Buying a new couch
  • Remodelling your kitchen
  • Or a home deposit

Whatever your goal may be, using a sinking fund can help you get there.

What is the difference between a sinking fund and an emergency fund?

A sinking fund is different from an emergency fund because an emergency fund is money put aside for an unknown expense. A sinking fund is a known planned expense you are slowly saving up for.

Your emergency fund should have enough money to cover 3-6 months of expenses for any sort of emergency. You can use it when unexpected events happen, like your pet needing emergency surgery, your car engine needing urgent replacement, breaking a tooth or your plumbing exploding. Sometimes life happens, so you should have money set aside and ready just in case.

How to create a sinking fund

When creating a sinking fund you determine the amount you need to save by dividing the total cost by the number of months you have to save for it.

Here are four easy steps to get started:

Step 1: Decide what you’re saving for

This could be anything like having funds for Christmas or buying your mum the newest iPhone.

Step 2: Decide where you want to store your sinking fund

Do not keep your sinking fund in your everyday account. So that you don’t accidentally spend it, it’s better to open up a savings account. When deciding on a savings account look for one with no monthly fees and low minimum balance requirements.

Step 3: Decide how much you need to save

As mentioned before, to determine how much you need to save, take the total cost of the expense and divide it by the number of months or weeks you have left - until it’s time to make the purchase.

That means if you want to buy your mum an iPhone 13 for Christmas and it’s July, you’ll have about five months to save. You’ll need to put about $270 in your sinking fund each month until December to hit the mark.

Step 4: Add your sinking fund to your budget

This step could be considered the most important. A sinking fund can only work if it’s in your budget. That way you are constantly making sure you are setting money aside to reach your goal.

Best accounts for your sinking fund

​​If you want the best of the best, check out our Mozo Expert Choice Award winners for Saving Accounts. More than 248 savings products were analysed and compared by a panel of judges to showcase which ones offer the greatest value to Australian borrowers.

Ready to start saving? Check out our savings account comparison table below to get started on your new saving challenge.

Savings account comparisons on Mozo - last updated 6 December 2023

Search promoted savings accounts below or do a full Mozo database search . Advertiser disclosure
  • Mozo Expert Choice Badge
    Savings Account

    5.50% p.a. (for $0 to $250,000)

    4.75% p.a.(for $0 to $1,000,000)

    Yes up to $250,000

    Bonus variable rate is available for the first four months.

    Competitive introductory variable rate for first 4 months (on deposits up to $250,000). No account keeping fees to pay. Multiple 2023 Mozo Experts Choice Award winner.

  • Reward Saver Account

    5.25% p.a. (for $0 to $1,000,000)

    0% p.a.(for $0 and over)

    Yes up to $250,000

    Intro bonus rate of 5.25% for balances up to $1,000,000 for the first 4 months, reverting to 3.25%. Minimum deposit of $50 and no withdrawals.

    Introductory bonus rate for balances up to $1,000,000 for the first 4 months. Minimum deposit of $50 and no withdrawals. Start your account online in under 10 minutes and earn interest on balances up to $1,000,000 (T&Cs apply). No monthly account fees, helping you save smarter and faster.

  • Reward Saver

    5.25% p.a. (for $0 to $100,000)

    0.30% p.a.(for $0 and over)

    Yes up to $250,000

    Earn a high interest bonus rate if you hold an eligible transaction account and meet the bonus rate conditions (T&Cs apply). Only requires $1 to open. Free e-banking transactions. No monthly service fees to pay. Access your account via e-banking or the Bendigo Bank app. Not applicable to business customers.

  • Mozo Expert Choice Badge
    High Interest Savings Account

    5.75% p.a. (for $0 to $250,001)

    4.40% p.a.(for $0 to $250,001)

    Yes up to $250,000

    Bonus rate for the first 4 months from account opening

    Reward yourself with a higher rate for your good savings habits with the Rabobank High Interest Savings Account . Receive the maximum rate when you grow your balance by at least $200 each month. No Account keeping fees. No minimum balance.

  • High Interest Save Account

    5.10% p.a. (for $0 to $250,000)

    0.10% p.a.(for $0 and over)

    Yes up to $250,000

    Deposit at least $200 to either Spend or Save account from an external source each month.

    No monthly fees on any of your save accounts. Split your money with up to 10 Save accounts. Set savings targets and track the progress of all your Save accounts. Deposits guaranteed up to $250K per customer.

  • Mozo Expert Choice Badge
    Bonus Saver Account

    5.00% p.a. (for $0 to $250,000)

    0.05% p.a.(for $0 and over)

    Yes up to $250,000

    Bonus rate when at least $20 is deposited each month and five Visa Debit transactions are made each month using linked Glide transaction account.

    Start saving and earn interest with just a $20 deposit and make 5 eligible transactions each month. No fees or penalties for withdrawing money.

  • Savings Maximiser

    5.50% p.a. (for $0 to $100,000)

    0.55% p.a.(for $0 and over)

    Yes up to $250,000

    For customers who have an Orange Everyday account, deposit $1000 into a personal ING account, make 5 eligible transactions and grow their nominated Savings Maximiser account each month.

    No ING fees. Great variable rate every month when you grow your balance each month in addition to other eligibility criteria.


^See information about the Mozo Experts Choice Savings Account Awards

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