Permanent interest bearing shares - PIBS - are issued by building societies as a way of raising capital. They are listed on the stock exchange and can be traded much like any other security. The main attraction for income investors is the higher rate of interest on offer - typically 6% - 8% at current prices.
They pay a fixed rate of interest (coupon) every six months and although it will be taxable just like interest on a deposit account, it is paid gross so if held within a pension, sipp or ISA, there is no tax to pay. Also useful if you are a non tax payer.
The purchase process is a little different from shares and funds - for a start, you cannot buy directly online, you will need to give your broker a call and deal via a telephone trade. With some brokers, this will be more expensive - for example my broker, Sippdeal charge £20 more for a telephone trade. This is offset by the fact there is no stamp duty to pay. The other aspect is you will need to allow for the additional cost of the accrued interest since the last payment - you will, of course, get the full 6 months interest on the next payment date.
In 2007/08 at the start of the economic banking meltdown, some of the former building societies which had demutualised got into difficulties and many investors holding PIBS in the likes of Bradford & Bingley and Northern Rock lost money. The holders of PIBS rank behind all other lenders and depositors and whilst ordinary savers are protected by the FSCS for the fist £85,000 of savings, no such protection is afforded to holders of PIBS.
Anyone considering them as a possibility should therefore ensure they are satisfied regarding the strength of the building society issuing the PIBS.