1

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?

4

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.

  • hmm it seems like you get the safety of being able to at least get your money back, but no guarantee that you will actually receive 3.2% interest. So not a traditional savings scheme. – user619818 Feb 26 '16 at 18:40
  • Interesting. Are deposits insured the way US bank and creditunion deposits are? Is it possible to lose principal if ghey hit a string of unsuccessful investments? I agree this drserves more detailed invedtigation. On the other hand, I'm delighted to see a "bank" that is operating like a traditional savings-and-loan; I wish we could get the regulations back in place to force more to do so. – keshlam Feb 26 '16 at 19:30
  • @keshlam Bank deposits in UK are protected by FSCS till £75000, if the bank goes bust. – DumbCoder Feb 29 '16 at 14:48

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