Last updated: 4 November 2026. Costs checked on GOV.UK for 2026/27. General information, not financial advice.
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Do you ever get to the end of a month thinking, “That was meant to be a normal month”? Then you look back and there was an MOT, two birthday parties, a school trip and a boiler service. None of those were emergencies. They were all predictable. They just weren’t in the budget.
That’s exactly what sinking funds fix. A sinking fund is a small pot of money you add to every month for a cost you know is coming. When the bill arrives, the money’s already waiting. No credit card, no stress, no “where did my savings go?”
In this guide I’ll explain how sinking funds work in the UK, give you 25 sinking fund categories (with real 2026/27 costs where there’s an official figure), and show you how to set them up without opening 25 bank accounts.
What is a sinking fund?
A sinking fund is money you set aside regularly for a specific, expected cost. You divide the cost by the number of months until you need it, and save that amount each month.
Example: the TV Licence costs £180 a year. £180 ÷ 12 = £15 a month. Save £15 a month in a “TV Licence” pot, and when the renewal comes round, the money is there.
Sinking fund vs emergency fund: what’s the difference?
They’re both savings, but they do different jobs:
| Sinking fund | Emergency fund | |
|---|---|---|
| For | Costs you know are coming | Costs you can’t predict |
| Examples | Christmas, MOT, birthdays, school trips | Job loss, boiler breakdown, big vet bill |
| Amount | Set by the cost (e.g. £180 for the TV Licence) | Usually one to three months of essential bills |
| You spend it | Every year, as planned | Only in a real emergency |
You need both. Without sinking funds, your emergency fund gets used for Christmas and isn’t there when the washing machine floods the kitchen. Start your emergency fund with my £1,000 emergency fund guide.
How to set up sinking funds in 4 steps
- List your irregular costs. Go through last year’s bank statements and note everything that isn’t monthly. The 25 categories below will jog your memory.
- Estimate each cost and the date. Use last year’s figure, or the official price where there is one.
- Divide by the months left. If Christmas costs you £600 and it’s January, that’s £600 ÷ 11 = about £55 a month.
- Automate it. Set up a standing order for the day after payday into your savings pots.
If the total is more than you can afford, that’s useful to know. Prioritise the essentials (car, home, school) and trim the rest. My 50/30/20 calculator can help you see where the money comes from.
25 sinking fund categories (UK)
Home
- Council tax “gap” months. Most councils collect over 10 months (April to January), so February and March feel richer. If you pay over 12, ignore this one. If you’re on 10, try saving a little in those months towards April. Check you’re getting every discount with my council tax discount calculator.
- TV Licence. £180 a year for a colour licence. Save £15 a month. (GOV.UK)
- Boiler service. An annual service helps keep your boiler safe and efficient. Use last year’s price and divide by 12.
- Home repairs and maintenance. Leaky taps, a broken fence, a new washing machine part. Many people save a small fixed amount, such as £20 to £30 a month, and adjust after a year.
- Home and contents insurance (if you pay yearly). Paying annually is often cheaper than monthly. Divide last year’s premium by 12.
- Furniture and appliances. Fridges, sofas and mattresses don’t last forever. A small pot means you can buy a good one rather than the cheapest one on credit.
Car and travel
- MOT. The maximum official fee for a car is £54.85. That’s about £4.60 a month. (GOV.UK)
- Car service and repairs. Tyres, brakes and wipers. This is the one that catches most families out.
- Vehicle tax. The standard rate is £200 a year if you pay in one go (for most cars registered from April 2017, after the first year). If you pay by monthly Direct Debit, there’s a small surcharge. (GOV.UK)
- Car insurance renewal. If you pay annually, divide last year’s premium by 12. When the renewal letter arrives, compare. That’s how I saved £400 on mine: my renewal quote was £900, and a different insurer was £400 cheaper.
- Breakdown cover. Another annual payment that’s easy to forget.
- Passports. An adult passport costs £102 online and a child’s costs £66.50 online. Renewing passports for two adults and two children costs £337 in one go. Children’s passports last five years and adults’ ten, so note the expiry dates and start a small pot well before. (GOV.UK)
Family and children
- Christmas. The big one. Add up what last Christmas cost (gifts, food, travel, outfits) and divide by 11 or 12. My Christmas savings club guide explains why your own savings pot is usually safer than a shop savings club.
- Birthdays. Your family’s birthdays plus all those children’s parties. Count them up: it’s often more than you’d guess.
- Back to school. Uniform, shoes, bags and stationery each August and September.
- School trips and activities. Residential trips, swimming lessons, clubs, music exams.
- School holiday childcare and days out. Holiday clubs are often a big jump from term-time costs.
- Children’s clothes and shoes. Children grow at the worst possible times. Selling outgrown clothes on Vinted can top this pot back up.
- Gifts and occasions. Weddings, christenings, teacher gifts, Mother’s and Father’s Day, Diwali, Eid or Easter.
Health and personal
- Dentist and opticians. NHS dental charges and glasses for anyone who doesn’t get them free.
- Pets. Vaccinations, flea treatment, insurance excess and boarding. My pet cost calculator estimates the yearly cost.
- Haircuts, clothes and self-care. Smaller, but they add up across a family.
Money admin
- Tax pot for side hustles. If you’re self-employed or have side hustle income over the £1,000 trading allowance, put aside a share of every payment for your Self Assessment tax bill. My side hustle tax calculator shows roughly how much.
- Annual subscriptions. Amazon Prime, software, magazines, memberships. Use my subscription cost calculator to list them, then cancel the ones you don’t use.
- Holidays. Save for the holiday before you book it, not after. My cheap European holiday guide has lots of ways to make the pot go further.
Not every category will apply to you, and you might have others: a wedding, a new car, a house deposit. Those are sinking funds too, just bigger ones.
How much should I put in each sinking fund?
Use this simple formula:
Monthly amount = expected cost ÷ months until you need it
Here’s a worked example using the official figures above, for one car and a TV Licence:
| Sinking fund | Yearly cost | Monthly |
|---|---|---|
| TV Licence | £180 | £15.00 |
| MOT (maximum fee) | £54.85 | £4.57 |
| Vehicle tax (standard rate, paid yearly) | £200 | £16.67 |
| Total | £434.85 | £36.24 |
That’s three bills, about £36 a month, that will never surprise you again. Add your own figures for Christmas, birthdays and car repairs.
If you’re starting late (say the MOT is in 4 months), divide by 4 for this year, then drop back to the yearly amount once it’s paid.
Where to keep your sinking funds
You don’t need 25 separate accounts. Here are three simple set-ups:
- Savings pots in your banking app. Many UK current accounts and app banks let you create named pots or “spaces” inside one account. This is the easiest option.
- One easy-access savings account plus a tracker. Keep everything in one account and track each fund on paper or a spreadsheet. My Sinking Funds and Savings Pots planner is made for exactly this.
- Cash envelopes for small, frequent costs. Some people like physical cash budget envelopes (ad) or a small budget binder with zip pockets (ad) for things like haircuts and birthday presents. Keep large amounts in the bank, not at home.
Two safety points:
- Savings in UK-authorised banks and building societies are protected by the FSCS up to£120,000 per person, per firm. Some banks share one licence across brands, so check if you have a lot saved. (FSCS)
- Interest counts towards your Personal Savings Allowance: £1,000 for basic-rate taxpayers, £500 for higher-rate and £0 for additional-rate (2026/27). Most people’s sinking funds won’t come close, but it’s worth knowing. (GOV.UK)
To earn a bit more on the money while it waits, compare rates in my best UK savings accounts guide.
Tips to make sinking funds stick
- Start with three. Christmas, car and birthdays are a great first trio. Add more once the habit sticks.
- Name every pot. “Christmas 2027” is much harder to raid than “savings”.
- Round up. £14.57? Save £15. The extra builds a small buffer.
- Review every three months. Costs change. Move spare money from a pot that’s ahead to one that’s behind.
- Top up from windfalls. Cashback, a tax refund or money from selling things are perfect sinking fund top-ups. My things to sell for cash guide has ideas.
- Don’t feel guilty spending it. That’s what it’s for. Spending your Christmas pot in December means the system worked.
Sinking funds UK: people also ask
What is a sinking fund in simple terms?
It’s money you save a little at a time for a cost you know is coming, such as Christmas, an MOT or a school trip. When the bill arrives, the money is already set aside.
How many sinking funds should I have?
Start with three to five for your biggest irregular costs, then add more as the habit sticks. Some families end up with 10 to 15. There’s no right number, as long as you can keep track.
Should sinking funds be in a separate account?
They should be separate from your everyday current account, so you don’t spend them by accident. Savings pots within one account, or one savings account with a tracker, both work well.
Is a sinking fund the same as an emergency fund?
No. A sinking fund is for costs you can predict. An emergency fund is for costs you can’t, like losing your job or a sudden repair. It’s best to have both.
How much should I save for Christmas each month?
Add up what you spent last Christmas and divide it by the months left. For example, £600 saved from January is about £55 a month. Starting in September would mean £150 a month, so the earlier the better.
Do sinking funds work if I’m on a tight budget?
Yes, even £5 a month in a few pots helps. They stop predictable costs from going on credit, which saves interest. If your budget doesn’t cover essentials, though, look at free help and debt advice first.
Summary
- Sinking funds are small, regular savings for costs you know are coming.
- Use the formula: cost ÷ months until you need it.
- Start with three: Christmas, car and birthdays.
- Keep them in named savings pots, separate from your current account.
- Pair them with an emergency fund for the things you can’t predict.
Next step: pick your first three sinking funds today, and track them in my Sinking Funds and Savings Pots planner. Planning your whole year? My free financial goals workbook is a good place to start.
General information only. I’m not a financial adviser. If you’re struggling to cover essential bills, please contact a free, confidential debt advice service such as MoneyHelper, StepChange or National Debtline.
Sources (checked 4 November 2026): GOV.UK: TV Licence · GOV.UK: MOT fees · GOV.UK: vehicle tax rates · GOV.UK: passport fees · FSCS: deposit protection · GOV.UK: tax on savings interest