Unwelcome in some corners, higher interest rates have translated to good news for savers, who are seeing decent returns on cash held in money market mutual funds for the first time in several years.

After a long period of low returns, average money rates are approaching 3 percent, and some experts say they may hit 5 percent by 2006 if the Federal Reserve stays on its current course.

The jump in money market rates has been spectacular over the past 14 months, with the yield on the average taxable money fund rising more than five-fold, from just over half a percent in June 2004 to 2.89 percent last week.

"We're seeing interest in cash for the first time since 2001, practically, and we expect the interest to only grow as rates continue to rise," said Peter Crane, managing editor of iMoneyNet, publisher of the Money Fund Report.

Judging from the fed funds futures market, the top-yielding money market funds could easily strike 5 percent next year, Crane said.

That's far from the highest annual rate of almost 17 percent in 1981, but it's an important psychological level of return for cash savers.

Asset flows into money funds also have begun to pick up after nearly four years of declines. Total assets have grown by $57.14 billion since mid-July and now stand at more than $1.9 trillion.

Higher rates on money market funds make life easier for savers, and may help ease the pain of retired investors earning just 2 percent from their cash holdings. It also provides a more palatable option for investors who want to avoid the risk of the stock market, Crane said.