Permanent Interest Bearing Shares: A Guide to Investing

Permanent Interest Bearing Shares are a type of investment that offers a fixed income stream for a specified period.

They can be a good option for investors who want predictable returns and a relatively low level of risk.

These shares are essentially debt securities, meaning the investor lends money to the issuer in exchange for regular interest payments and the return of their principal investment.

Investors can choose from various types of Permanent Interest Bearing Shares, including those offered by governments, corporations, and other organizations.

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Permanent interest bearing shares, or PIBS, are a type of debt security that offers a fixed rate of interest to investors.

PIBS are essentially IOUs issued by companies, which promise to pay a fixed rate of interest to the investor.

The interest rate on PIBS is typically fixed and guaranteed, providing a predictable income stream for investors.

In the UK, PIBS are often issued by building societies and other financial institutions.

These institutions use the money raised from PIBS to fund their activities and growth.

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Investing in PIBS can be a relatively low-risk way to earn a regular income.

PIBS are typically issued by banks and other financial institutions, which means you're lending money to these organizations.

By investing in PIBS, you can earn a fixed rate of interest, usually ranging from 4-6% per annum.

This interest is paid quarterly or annually, providing a regular income stream.

PIBS are generally considered a lower-risk investment, as they're backed by the creditworthiness of the issuing institution.

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Investing in PIBS can be a bit complex, but understanding the types of PIBS can help you make a more informed decision.

PIBS are subordinated debt, which means they rank lower than deposits and/or senior bonds in the event of the issuer being forced into liquidation.

Some PIBS have calls, which is an option that allows the issuer to repurchase the bond at certain dates.

PIBS can be issued by various organizations, such as building societies and water services companies.

Here are some examples of issuers mentioned in the article:

These issuers offer a range of PIBS with different coupon rates, such as 6.875% from Aviva Plc and 12.125% from Coventry Building Society.

The price of PIBS can vary, with some being sold at a higher price than others, such as Aviva Plc's PIBS being sold at 100.225 and Coventry Building Society's PIBS being sold at 162.750.

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Investing in PIBS can provide a regular income stream, as they typically offer a fixed rate of interest, such as 4-6% per annum.

One of the main benefits of PIBS is the tax-free interest, which can be a significant advantage for investors.

PIBS can be a low-risk investment option, as they are secured against a property or other tangible asset.

Investors can also benefit from the flexibility of PIBS, with some bonds offering the option to redeem early or switch to a different investment.

PIBS can be a good option for those looking to diversify their investment portfolio, as they offer a different asset class than stocks and shares.

The interest on PIBS is usually paid quarterly or annually, providing a regular income stream for investors.

Investors should be aware that PIBS are typically unsecured, meaning they are not protected by a charge on the underlying asset.

Investing in PIBS can be a bit riskier than other types of investments.

One major risk is the potential for credit default, where the borrower fails to make payments. This happened with the Greek government in 2015, causing a significant loss for PIBS investors.

PIBS are exposed to credit risk, which can be higher than other types of investments.

The credit rating of the borrower is crucial in determining the risk level of the PIBS. A lower credit rating means a higher risk of default.

Investors should be aware that PIBS are typically unsecured, meaning they are not backed by any collateral.

This lack of security can make it more difficult to recover losses in the event of a default.

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To qualify as PIBS, shares must have certain characteristics, including permanence, meaning they can't be repaid except in exceptional circumstances.

Permanence is a key feature of PIBS, and it's defined as having no repayment with the exception of winding-up or with the consent of the FSA.

Interest-bearing is another characteristic, where the rate may be fixed or vary by reference to market rates, and not directly related to the society's profits.

PIBS are non-cumulative, meaning investors lose the right to any interest that is passed.

The payment of interest can be passed or abated if the society's capital position would otherwise be impaired.

The writing down of the outstanding principal can absorb losses.

PIBS rank behind ordinary building society shares on a winding-up, and become subordinated debt if the building society converts to a plc.

Here are the key characteristics of PIBS in a nutshell:

Investing in PIBS can have significant tax implications.

The interest earned on PIBS is taxable, and it's considered ordinary income, not capital gains.

You'll need to report the interest earned on your tax return, and it will be subject to income tax.

For example, if you earn £100 in interest from your PIBS, you'll need to pay income tax on that amount.

As a result, it's essential to consider the tax implications before investing in PIBS.

The interest earned on PIBS can be offset against other income, such as dividends or capital gains, to reduce your overall tax liability.

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Building societies are allowed to issue PIBS as a means of strengthening their capital base. This is done to improve their financial stability.

PIBS are a type of share that is permanently interest-bearing. The interest rate may be fixed or variable and is not directly related to the society's profits.

To qualify as PIBS, the shares must have certain characteristics, including permanence, interest-bearing, non-cumulative interest, and subordinated debt status.

PIBS are different from existing building society shares, which are like deposits. PIBS are perpetual and freely transferable.

PIBS rank lower than deposits and/or senior bonds in the event of the issuer being forced into liquidation. This means that if a building society were to go bankrupt, PIBS investors would be repaid last.

Here are some examples of PIBS issued by building societies:

Note that the value of investments can fall as well as rise, and you could get back less than you invest.