PacePotA sinking fund is money you set aside a little at a time for a cost you know is coming. It's the quiet habit that stops Christmas, the car service, or the annual insurance renewal from wrecking your month.
The problem sinking funds solve
Some costs are not monthly, but they're also not surprises. You know Christmas happens in December. You know the car needs an MOT. You know the insurance renews. Yet because they don't arrive every month, they're easy to ignore, until they all land at once and force you onto a credit card.
A sinking fund spreads each cost across the months leading up to it. Instead of finding £600 in December, you set aside £50 a month all year and the bill is already covered when it arrives.
Common sinking funds for UK households
| Fund | Typical annual total | Monthly saving |
|---|---|---|
| Christmas (gifts, food, travel) | £600–£1,000 | £50–£83 |
| Car MOT, service, and repairs | £400–£800 | £33–£67 |
| Home insurance annual renewal | £200–£400 | £17–£33 |
| Birthdays and gifts throughout the year | £200–£400 | £17–£33 |
| Vet bills (pet owners) | £200–£600 | £17–£50 |
| Home maintenance (boiler service, small repairs) | £200–£500 | £17–£42 |
| Children's school costs (trips, uniform, equipment) | £200–£500 | £17–£42 |
You can run several at once. The formula never changes: total cost ÷ months until due = monthly amount to save.
PacePot lets you track multiple goals side by side, each with its own date and monthly pace. Perfect for running several sinking funds simultaneously.
Open the PacePot plannerSinking fund vs emergency fund
They do completely different jobs and need to be kept separate:
- Sinking fund: for planned costs you can see coming: Christmas, MOT, renewals, birthdays.
- Emergency fund: for genuine surprises: job loss, a broken boiler, an urgent medical cost.
If you use your emergency fund every December for Christmas spending, it is not really an emergency fund. Start a Christmas sinking fund and leave the emergency buffer intact for actual emergencies.
Where to keep sinking fund money in the UK
You want the money accessible but clearly labelled so it doesn't get spent by accident. A few options that work well:
- Monzo pots: Create a named pot for each fund ("MOT", "Christmas", "Home repairs"). Money in pots is separate from your spending balance and won't appear in your card balance.
- Starling Spaces: Same concept, different name. Starling calls its savings pots "Spaces" and lets you label and automate each one separately.
- A dedicated easy-access savings account: A single savings account tracked in PacePot works well if you prefer not to use a challenger bank.
Avoid keeping sinking fund money in your main current account. If it sits alongside everyday spending money, it will get spent.
How to set them up
- List every irregular cost you know is coming in the next 12 months.
- Estimate a realistic total for each one, including a small buffer for overspend.
- Divide each total by the months until the cost is due.
- Set up an automatic transfer for each monthly amount, clearly labelled by fund name.
- Track each fund as a separate goal in PacePot so you can see progress and spot if you're falling behind.
How many sinking funds should you run?
There is no right number. Some households run two or three; others run eight or ten. The practical limit is whatever total monthly amount you can fund without squeezing the rest of your budget too hard. Start with your highest-cost annual expenses (usually Christmas and car costs), then add more funds gradually as you get comfortable with the system.