What are PIBS?

Permanent Interest Bearing Shares (PIBS) are fixed interest securities issued by building societies and quoted on the stock market. Like other fixed interest securities if interest rates generally go up their value goes down; conversely, if rates generally fall their value rises. There is a risk that you will not get back your investment if the general level of interest rates changes. Occassionally, a building society will issue floating rate PIBS, where the interest rate changes in line with other rates of interest.

In the very unlikely event of a building society getting into financial trouble, it can miss paying interest on PIBS. If the society became insolvent the PIBS holders would be last in the queue to get their money back. All the other investors would be paid first, and only if there was sufficient left would the PIBS holders be repaid. Also, unlike other building society investors, PIBS holders are not covered by the Financial Services Compensation Scheme. So far no building society has failed to pay interest when it falls due. The other risk is that the market in PIBS is not very liquid, so investors may not be able to sell their PIBS when they want to - it depends on there also being buyers in the market at the same time. In theory, therefore, PIBS are riskier than other building society investments, and, accordingly, attract a higher interest rate.