Wednesday, September 19, 2012

An Escrow Account: Funding for Irregular Bills

Mortgage companies normally set up an escrow account with a home loan so they can be assured that homeowners insurance and real estate taxes are paid on a property. The collect a set amount each month that is kept in account until the insurance or taxes are scheduled to be paid. It can be good for you as the homeowner, so you are not hit will one large bill.

We have found it is helpful to set up our own escrow account for other irregular bills. We save a set amount each month, usually from one paycheck, but sometimes from both.

These are the items we escrow each year:

Van registration fees 330
Truck registration fee 150
Auto insurance premium 890

Total annual amount is $1370
Total monthly amount is $114.17

Currently rounded up to $121/month to account for an earlier shortage. I have this money auto drafted from our primary checking account into our second account. When it is time to pay the registration fees or insurance, I either pay directly from the second checking account or make a transfer to the first account.

If you go to establish your own escrow account, it is a good idea to run through the year with the deposits and payments you will make. It is possible for there to be a shortage of funds in a month that you need to make a payment. To make it up, you can start your account with that amount, or be prepared to make up the difference out of your paycheck that month to pay the remainder of the bill. You can also increase your monthly allocation to your escrow account to make up for the shortage, too.

I generally review our escrow account once a year in October when auto registrations renew. If there is a significant change to any of these during the year, I adjust the amount at that time. Any body else escrow or save up for irregular bills? Any other tips or advice?


  1. I tuck money aside in a savings account each month for those things. 'annual expenses' I call them. CAA fees, Costco, Insurance..that sort of thing. It's nice to not be surprised by those bills and to know there is money for them.

  2. A savings account works well too! I agree it is nice not to be surprised about those irregular bills.


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