Higher interest rates are good news for savers – although some banks have been slow to raise rates paid on deposit accounts.

However, money market funds could be a good choice for some savers, providing an alternative to traditional high-street accounts. These funds invest in short-term debt issued by governments, banks and companies with high credit ratings and typically pay investors a monthly return.

These are relatively low-risk funds, certainly compared with equities and longer-term bonds, but this doesn’t mean they are entirely risk free. Interest rate movements can affect the value of
the underlying holdings and payments made to investors. There is also the risk an issuer could go bust, defaulting on payments, although the spread of securities minimises this to some extent.

Money market funds allow instant access and are often used by investors as a temporary safe haven when stock markets look turbulent. Returns vary, depending on the underlying
investments, but many funds are currently yielding around 5%. Like all investment funds, though, there will be management fees to pay.

It’s important to note that these funds are not covered by the Financial Services Compensation Scheme which protects deposits up to £85,000 in the event of a bank or building society going under.