Why do some institutions offer what seems like illogically high interest rates?

Question

In the UK at the moment there is a company, Milestone Savings, which is offering a 5 year bond with 3.2% interest. You have to deposit £10,000 - and presumably to get the 3.2% have to keep this in the account for 5 years.

Yet the UK inflation rate for january 2016 was measured at only 0.3%.

Given that this company presumably aims to make a profit, why are they offering such a high rate. Does this indicate that this company is desperate for cash? Or that they think inflation will rise steeply over the next few years and they want to lock people in?

I am wondering what the commercial logic is here?

Answer 1

Milestone was launched in March 2015. New bank has to entice depositors to part with their cash, so offers a higher rate because with no history they are considered a risky bet.

Then reading this article I see it mentions this very important statement

The savings rates are also 'expected profit' as it is a Shariah compliant provider. This means it doesn't technically offer interest – instead, it invests funds 'ethically' to earn profits which it then 'shares' with savers.

Now it makes me very wary and my firm advice is to read the T&Cs so as to be quite clear on what they will give and what they will not.