Pibs: A tempting offer for income seekers

Permanent interest bearing shares (Pibs) often offer temptingly high returns. But before you buy, you need to be aware of the risks. Piper Terrett explains.

Income-starved investors might be excited to know that they could get yields in the region of 6% from their local building society. But these aren't accounts they're IOUs issued by the societies, and like any other high-yielding asset, they carry significant risks you need to be aware of before you consider buying.

"Permanent interest bearing shares" better known as Pibs are similar to bonds, but are issued by building societies to raise funds. They usually pay out a fixed rate of interest each year, and are traded on the stock exchange. However, unlike bonds, Pibs do not usually have a redemption date on which the issuer must return investors' capital (though some give the issuer the right to buy at a future date which is something you must take into account if you consider investing in them, as we'll see in a moment).The yields on Pibs can be tempting.

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Piper Terrett is a financial journalist and author. Piper graduated from Newnham College, Cambridge, in 1997 and worked for Germaine Greer and for Adam Faith’s Money Channel before embarking on a career in business journalism. 

She has worked for most top financial titles, including Investors Chronicle, Shares magazine, Yahoo! Finance and MSN Money. She lectures part-time at London Metropolitan University and is the author of four books.