What Is a Revolving Savings Account?

What Is a Revolving Savings Account?
••• Paul Hart/iStock/Getty Images

A revolving savings account is a separate savings account you set up to hold money for future expenses you know are coming but aren't paid regularly. For example, you only buy holiday gifts or pay your car taxes once per year, but those can be substantial costs that can break your budget if you're not careful. A revolving savings account lets you plan ahead with your savings so you can cover the bills when they come due.

Determining How Much to Save

To figure how much you should be adding to your revolving savings, add up the amount you expect to spend on all of your non-regular expenses and divide by 12. For example, say you plan to spend $200 on holiday gifts, $100 on your car registration and $300 on a summer trip. The total here is $600, so you would divide $600 by 12 to find you need to be adding $50 per month to your revolving savings account to cover these expenses.

Timing Your Revolving Savings Account

The further in advance you can start your revolving savings account, the easier it is to set aside money because you won't require as much each month. For example, suppose your vacation is at the end of February and the cost to finance it is $1,200. If you start saving 12 months before, you only have to set aside $100 a month in your revolving savings account. But if you wait until December to start saving, you only give yourself three months, so you have to set aside $400 a month.