What are PIBS and are they risky as an investment?
Several building societies and some banks began to issue Permanent Interest Bearing Shares (PIBS) in the early 1990s, and these became characterised by generally higher yields. Part of the reason for these higher yields is the risk associated with them – there is no access to the Financial Services Compensation scheme, for example, should the issuer go bust and, in such an event, PIBS holders would rank below all other creditors. In addition, should the issuer decide for any reason to miss a payment, the interest is non-cumulative, that is the income would not be replaced. Another point to bear in mind for PIBS is that whilst they do tend to display bond/gilt type characteristics – the price for example will react oppositely to the direction of interest rates – they are thinly traded, and your broker will need to bear this lack of liquidity in mind when buying (or indeed selling) PIBS on your behalf. As a general rule, interest payments are made twice a year, though of course these dat
