As we enter 2025, it’s the perfect time to commit to greater financial stability by establishing an emergency savings aka a rainy-day fund. One of the most fundamental yet often overlooked aspects in any financial strategy is building a safety net. An emergency fund is dedicated savings designed to cover financial emergencies or unexpected expenses.

It acts as a safeguard when life throws you a curveball, such as a job loss, unplanned medical emergencies, or urgent home or car repairs. Without an emergency fund, you might be forced to rely on high-interest debt, thus, derailing your progress toward long-term financial stability. According to a 2019 Bank of Jamaica report, only one-third of Jamaicans have saved or set aside money through a regulated financial institution, leaving the majority vulnerable to financial setbacks caused by emergency expenses.

If you are determined to make 2025 the year you get serious about your finances, commit to building an emergency fund with three to six months’ worth of living expenses. While it may seem daunting, remember that building an emergency fund is a gradual, ongoing process. The key is to start small, setting aside a little each month. This fund is strictly for emergencies, not to finance vacations or other non-essential purchases. Let us discuss the steps to take to lay a foundation for a more secure financial future in 2025 and beyond.

Where to Put Your Emergency Savings

Once you’ve committed to building your emergency fund, the next important decision is where to keep these savings. The 2023 National Financial Inclusion report commissioned by the Bank of Jamaica (BOJ) noted that approximately 22.8 per cent of Jamaicans still operate outside the formal financial system. Cultural traditions have helped to shape our savings habits. For example, you probably grew up seeing members of your family participating in “pardner” and this may influence how you think about savings, even if you do use the services of a financial institution. As you refine your savings approach in 2025, consider more secure, interest-bearing options in a financial institution. It not only protects your money but allows it to grow steadily over time. Choosing the right place to keep your emergency savings is an essential step in building long-term financial security.

An Emergency Savings Fund as a Tool for Wealth Creation

Your emergency fund can also be a tool to support wealth creation. Ensure that 2025 isn’t just the year you start taking building your emergency fund seriously, but also the year you make it work. Choose options that balance liquidity and steady returns. To get more out of your emergency fund in 2025, consider the following options to earn interest, without taking on high risks or comprising accessibility:

High-yield savings accounts

A high-yield savings account is a great starting point, offering higher interest than standard savings accounts, which often pay less than 1 per cent interest. These high-interest accounts give you immediate access to your funds and help your emergency fund grow steadily without completely locking your money away should an emergency arise. Shop around to find a savings account where you can earn a higher rate of interest to help your funds grow in 2025.

Money market securities

You can also consider placing a portion of your emergency savings in money market securities. These are short-term debt issued by a government, financial institution, or corporation. Like high-interest savings accounts, they are often used to park money for a short period of time. Examples of money market securities include Treasury bills (T-bills), certificates of deposits (CDs), and repurchase (repo) agreements. T-bills are government-issued, making them a low-risk option for savings. CDs may also be a good choice for you as they typically offer higher interest rates than that of standard savings accounts. However, they come with less flexibility due to their fixed term (usually 30 days). They are issued by the Bank of Jamaica (BOJ) and at current yields they can be an effective way to help your emergency fund keep pace with inflation. Repurchase (repo) agreements are another option available from local securities dealers, like NCB Capital Markets Limited (NCBCM). They mature over a short time frame, usually 30, 90, or 180 days. In this arrangement, securities are sold to investors at an agreed price, and then bought back later at a higher predetermined price, with the difference serving as the return on the investment. This type of investment offers low risk and relatively quick liquidity; however, they may attract fees if the investor wants to access their funds before the end of the tenure period.

Where not to Put Your Emergency Savings

As you try to build your emergency fund in 2025, you may be tempted to invest in the stock market, in the hopes of building it faster. While stocks are great for long-term wealth creation, they are volatile and are not ideal for emergency funds. If an unexpected expense arises, you could be forced to sell at a loss. Similarly, keeping your funds in a shoebox under the bed, under a mattress, or even in a safe leaves you vulnerable to theft, fire, and the eroding effects of inflation. In addition to missing out on the opportunity to earn a yield on your money when you save in a regulated account at a financial institution, you also pass up the benefit of insurance on your savings.

Bottom line

Overall, building an emergency fund is a crucial step in your financial journey for 2025. It provides peace of mind, allowing you to weather unexpected storms without derailing your long-term financial goals. Consult your NCBCM wealth advisor to help you find investment options that allow you to keep your emergency fund accessible for urgent needs, while earning returns. As the new year begins, make it a priority to not just establish, but also to maintain and grow this important financial buffer and create financial stability for you and your family in 2025 and beyond.

– Kimberley Martin – Assistant Vice- President, Corporate Solutions, NCB Capital Markets Limited