YOUR MONEY: Eternally yours: a 9% rate from the building society

When interest is flagging, Pibs can breathe new life into your savings account.

Would you like a regular income of 9 per cent or more, fixed at this level forever? If you invest in permanent interest-bearing shares (Pibs), you will get exactly that. An added bonus is that they are issued by building societies, which makes Pibs a relatively secure investment.

Building societies issue them as a way of raising extra funds. They work in the same way as government-issued bonds, known as gilts: you hand over capital, and get a regular income in exchange. Government issues are very secure because they are backed by the Treasury but if you are prepared to take on a little more risk Pibs offer a higher income than most gilts and there are no redemption dates.

You will always be paid interest twice a year at the rate offered when you buy the shares. If you are a basic rate taxpayer, there is nothing extra to pay as 20 per cent tax is automatically deducted before interest reaches you. Non-taxpayers can reclaim this on their tax returns.

Building societies have only been able to issue these securities since 1991. There are 15 traded issues from 11 building societies and only four or five market-making firms who run Pibs "books". They are not really aimed at the private investor. But an increasing number of people have realised that they offer an excellent way to guarantee a decent income at a time of low interest rates.

Mark Dampier, an independent financial adviser at Churchill Investments in Avon, says that they are one of the most attractive fixed-interest investments but warns there is a downside that could catch out the unprepared: "The most important thing is not to confuse Pibs with an ordinary building society investment. Because they are a fixed-interest investment the capital value of your shares will drop as interest rates go up. There is a general feeling that interest rates will go up and they could be 7.5 to 8 per cent by the end of next year."

When rates rise income stays the same, and if you can hang on to your shares until interest rates drop again, you should be able to avoid selling at a loss - and even make a profit. There is no capital gains tax (CGT) liability when you sell at a profit.

If you want to buy or sell them, you will find that prices vary from day to day and between the market-makers, although you can get a general idea of current prices and the interest paid by looking at a weekly list published in the Financial Times on Saturdays (see box for this week's rates).

Private investors have to go through stock brokers to buy Pibs and you can keep costs down by going to a discount execution-only broker, although not all will deal in them. City Deal offers a good-value service, buying and selling them on behalf of individual investors at normal dealing rates (which start at pounds 9 over the phone and pounds 5 by post).

Stephen Pinner, the managing director at City Deal, says: "These shares have become more popular recently as interest rates have not been very good. The market is more active now than I've known it before."

Most Pibs issues have a minimum investment level of pounds 1,000 or pounds 10,000. If you want Halifax Pibs, you will have to put in at least pounds 50,000. Pibs investors are eligible for cash or share bonuses when building societies are taken over or become banks. The same rules apply for Pibs holders as for ordinary saving members: to get a bonus you have to have owned the Pibs on the qualifying date announced by the society. So only those Halifax Pibs holders who owned the shares on 25 November, 1994 will get a bonus.

If you are looking for possible future bonuses, you only need pounds 1,000 to buy Birmingham Midshires Pibs, hotly tipped as a possible takeover target.

Once a building society becomes a bank Pibs are transferred to a new fund set up under the same conditions, so investors will not notice any changes. They are then ready to be traded on the stock market.

If you have a lump sum to invest and want to get a better spread than might be available if you buy direct, Johnson Fry securities has a Personal Pibs Portfolio. The minimum investment is pounds 20,000 and the gross yield is 9 per cent a year. Marketing director Alastair Altham says: "You could put all your money into one PIBS issue but by getting a spread you get a lower risk."

The Johnson Fry portfolio pays an income quarterly. There is a 4 per cent commission when you invest and nothing more to pay for two years. After that you will be charged an annual management fee of pounds 80 plus VAT a year.

Pibs offer a good deal for income-seekers but there are risks. The biggest stumbling block for cautious investors is likely to be the threat to capital value when interest rates rise. Moreover, in the unlikely event of a building society being wound up, Pibs investors will be last in the queue for compensation, behind all other creditors.

Mr Dampier is confident that Pibs are a good option for some investors: "I wouldn't say they are fantastic value at the moment but the price of Pibs isn't as high as some other fixed-interest investments. They definitely have their place as an income booster but you have to see Pibs as a very long-term investment."

City Deal: 01708 742288; Johnson Fry Personal PIBS Portfolio: 0171 451 1236.

Best-buy Pibs

The following PIBS have a minimum pounds 1,000 investment. The PIBS were originally issued at 100p each.

Price per share Gross yield

Birmingham Midshires 101p 9.232%

Bristol and West 143p 9.336%

Britannia 139p 9.347%

Coventry 13lp 9.211%

Leeds & Holbeck 145p 9.222%

Newcastle 118p 9.050%

Newcastle 137p 9.212%

Northern Rock 139p 9.020%

Skipton: 139p 9.219%

All prices to nearest 1p. Prices as at 23/10/96

Source: ABN Amro Hoare Govett

Suggested Topics
PROMOTED VIDEO
News
video
Life and Style
tech
Arts and Entertainment
Southern charm: Nicolas Cage and Tye Sheridan in ‘Joe’
filmReview: Actor delivers astonishing performance in low budget drama
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
film
Arts and Entertainment
Up my street: The residents of the elegant Moray Place in Edinburgh's Georgian New Town
tvBBC's The Secret History of Our Streets reveals a fascinating window into Britain's past
Extras
indybest
News
Albus Dumbledore, the headmaster of Hogwarts School of Witchcraft and Wizardry has been the teaching profession's favourite teacher
education
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Luis Suarez looks towards the crowd during the 2-1 victory over England
sport
Life and Style
Cheesecake frozen yoghurt by Constance and Mathilde Lorenzi
food + drinkThink outside the cool box for this summer’s frozen treats
News
John Barrowman kisses his male “bride” at a mock Gretna Green during the Commonwealth Games opening ceremony
peopleBarrowman's opening ceremony message to Commonwealth countries where he would be sent to prison for being gay
Sport
Sir Bradley Wiggins removes his silver medal after the podium ceremony for the men’s 4,000m team pursuit in Glasgow yesterday
Commonwealth games Disappointment for Sir Bradley in team pursuit final as England are forced to settle for silver
Sport
Alistair Brownlee (right) celebrates with his gold medal after winning the men’s triathlon alongside brother Jonny (left), who got silver
England's Jodie Stimpson won the women’s triathlon in the morning
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Junior Research Analyst - Recruitment Resourcer

£18000 - £20000 per annum + OTE £25K: SThree: SThree Group has been well estab...

Senior Analyst - Financial Modelling

competitive: Progressive Recruitment: This really is a fantastic chance to joi...

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Business Anaylst

£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...

Day In a Page

Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform