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Consumers React to Rise in Interest Rates - As short-term interest rose to five-year highs last week following action by the U.S. Federal Reserve, consumer were given another reminder that variable rate debt can be expensive. Just a few months ago, some debt was nearly free with 0% interest credit card offers stuffing the mailboxes of consumers nationwide. Those days are over. The costs of credit cards, mortgages and other debt linked to the prime rate just jumped, and credit experts say that such costs are weighing heavily on consumers.
Savers, on the other hand, are rejoicing. Interest paid by investments into the money markets are really paying off well this year, and have become a real competitive alternative for investors on a risk-adjusted basis. Returns from investments in the money markets are hovering just under 5%. Given the inherent risks of stock and bond investing, the money markets are viable risk-adjusted investment choices, and investors are responding. According to the Investment Company Institute, retail money market funds increased their assets by $6.99 billion in the latest week to $859.56 billion. Meanwhile, the assets of tax-exempt funds rose by $828.2 million to $206.18 billion.
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