InvestorQ : How keeping money in a sinking fund is better than a savings account or creating an emergency fund for the same?
Sneha Balasubramanian made post

How keeping money in a sinking fund is better than a savings account or creating an emergency fund for the same?

Answer
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Isha Tharwani answered.
3 months ago


There’s not much difference in a sinking fund and a savings account as the purpose of both the funds is to keep aside some money for future purposes. However, a sinking fund can be in any form of investment be it mutual funds, equity, corporate bonds, fixed deposit, etc. Therefore, in most cases, the return on investment under a sinking fund is simply better than any other fund. Another difference can be outlined as the sinking fund is kept for a particular purpose, while a savings account is used for just keeping your money in a safe place.

Sinking fund and emergency fund are not similar in their purpose as one creates a sinking fund for a specific purpose in mind while the emergency fund is created for unknown hardships. An emergency fund is generally created by way of funds that we can easily liquidate, for example, liquid funds, short-term funds, etc.

So, technically all of the above three funds have different purposes and we can sometimes use them interchangeably.