Advice on Investing in PIBS

In these times of low interest rates, PIBS (Permanent Interest Bearing Shares), which were often issued in times of high interest, can offer an attractive investment. However, there are a few things you should bear in mind before you invest in this form of risk capital.

• In general, PIBS have no redemption date. However, some building societies may have redemption dates when they may (or may not) exercise their right to buy back the bonds. Always read the terms and conditions carefully before buying, or take specialist advice.
• In general, PIBS pay a fixed rate or 'coupon', set when they are issued. This makes PIBS issued in times of high interest very attractive in periods of low interest rates.
• The price of the PIBS is affected by the current level of interest rates; if interest rates fall, the price of PIBS rises until the yield comes into line with interest rates generally. If interest rates go up, the price of these securities will fall.
• PIBS pay interest gross, usually twice a year. It is worth bearing in mind that payments are normally non-cumulative, so in the event that a society fails to make a payment, no obligation is carried forward, and the interest will be missed.
• PIBS are traded on the stock market, and so may only be sold if there are willing buyers in the market. This can cause problems for investors, especially when interest rates rise and PIBS become less attractive to buyers.