PIBS income generating opportunity

Savers and income seeking investors should take a look at this income generating option.

For anybody that was stunned by the recent scare over the financial health of some of most respected banks and financial institutions we are suddenly aware that even what were seen as risk free deposit accounts with banks and building societies are not completely risk free. If those financial institutions go bust then their is a risk that you as a saver may lose all or some of your savings. Thankfully, the Government recently increased the amount of a savers savings that are guaranteed to £50,000.

Are you prepared to risk a PIBS?

Therefore savers and investors who are prepared for a bit of risk may want to consider what are called PIBS or Permanent Interest Bearing Securities. n 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. However, the recent debacle with former building societies which have been taken over by the government have illustrated the potential risks that holders of PIBS face. In the case of Northern Rock PIBS the government has continued to pay the coupon or interest whilst for Bradford & Bingley the situation is less clear. Check out this article on these PIBS for some up to date info.

So clearly there are some risks attached to buy PIBS but what about the returns?

Currently the best rates available on fixed rate PIBS are a stratospheric 30% but this is on the Bradford and Bingley PIBS where there is considerable debate over whether the coupon will be met this January. Interest or the Coupon as it is known is paid twice a year.

More typically PIBS yield between 7-10%. Given that interest rates for many savers are nearer 1% than 10% this is looking very attractive, especially for what up until recently were considered very low risk investments. I'm going to be looking at several PIBS for inclusion in my own income generating portfolio and will go through the selection process in future posts. At the moment the best place to get an overview on yields is the FT weekends Money supplement or go to Collins Stewart website. Remember PIBS which are traded on the LSE prices will vary daily in the same way as shares.


How do I buy PIBS?

are traded on the London Stock Exchange (LSE) in much the same way as equities.

Market makers will quote a firm two-way price on the LSE dealing screens, though there is a limit to the size in which they are obliged to deal at these prices.

The spread between the bid (the price at which you can sell) and offer (the price at which you can buy) and the quantity at which the quoted prices are firm will vary from stock to stock.

The stockbroker executing the business for you will be able to give you the specific details for the Pib you are looking to deal in.

No stamp duty is paid on purchases of Pibs

Other info about PIBS

Former building societies including Halifax and Cheltenham & Gloucester can also issue Pibs and currently do so, although these are referred to as PSBs (Perpetual Sub Bonds).

You do pay income tax on Pibs, but you can shelter them in a tax-free Isa. Many of the Pibs have very long redemption dates while some don't have any redemption-dates. If you invested in Pibs this would make you a member of the society. They act much like bonds, so are not risk-free. So, if interest rates are rising their price will fall.


Need to know more about PIBS or have a comment about investing in PIBS post a comment below

New year income generating investments

After a calamitous 2008 where putting my faith in highly leveraged income generating investments. This clearly was a big mistake.

I was not the only income seeking investor that fell foul of this mistake given the fall in the numbers and fortunes of many of the worlds billionaires. However, in 09 with my meagre pile much depleted I am determined to pursue much less risky income generating options. Lets hope that 09 is far more successful. In many ways it couldn't be less so.

Income seeking investors who watched this week with horror as UK income seeking investors were confronted with the reality that interest rates in the UK have hit an all time low of 1.5%. Many income seeking investors are now confronted with deposit rates in the UK of less than 1%. My interest rates on the various esavings accounts I hold such as my Natwest and First Direct are now at 1.3 and 1.75% AER. I'm therefore looking at alternative fixed rate saving accounts anticipating that interest rates and therefore deposit rates are likely to fall further in 09.

Having studied the financial press such as the FT it seems like I'm going to be hard pressed to get any more than 5% from a fixed savings account. Moneyfacts has shown me a table of the best fixed savings rates around. Not wishing to tie my cash up for more than a year. I think interest rates could rise rapidly in 2010 as all the liquidity being pumped into financial system turns the spectre of deflation into rampant inflation. I am therefore looking at going for the Anglo Irish Bank's 4.6% Fixed Rate Bond. I understand that this is guaranteed by the Irish government. Any more information from readers would be appreciated before I put my trust in our Celtic cousins.