Difference Between Sinking Fund, Emergency Fund and Savings Account
Basis |
Sinking Fund |
Emergency Fund |
Savings Account |
---|---|---|---|
Purpose |
Specific purpose and time-bound, such as debt repayment or asset replacement. | Unforeseen circumstances or emergencies, provide a financial safety net. | General purpose, available for anticipated reason or expense. |
Time Horizon |
Time-bound with a pre-determined goal and maturity date. | Ongoing with no specific time constraint. | Ongoing with no specific time constraint. |
Usage Flexibility |
Intended for a specific purpose outlined in the fund’s objectives. | Reserved for unexpected expenses or emergencies, providing flexibility. | No restriction or usage is available for any financial period. |
Funding Approach |
Systematic contributions over time to achieve a targeted amount. | Incremental contributions over time for ongoing security. | No predetermined contribution structure, allowing variable deposits. |
Risk Mitigation |
Mitigates risk associated with specific financial obligations. | Acts as a safety net, mitigating the risk of unexpected financial challenges. | No specific risk mitigation is tied to a particular purpose. |
Example |
Funding for debt repayment, equipment replacement, or specific projects. | Covering medical emergencies, car repairs or unexpected job loss. | Holding funds for vacations, home purchases, or daily expenses. |
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