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BANK and BUILDING SOCIETY

Perpetual Subordinated Bonds

(Also known as Permanent Interest Bearing Shares, PIBS, Irredeemable Bond)

Lump sum invested in special fixed interest bonds originally issued by 10 large and medium sized building societies including seven which have now converted into banks. Interest is paid at a fixed interest rate.

There is normally no fixed life for the bonds. They may be bought and sold at any time at the market price through a stockbroker. If the bank or building society gets into financial difficulties, it may miss interest payments. You can also lose money if the market price has fallen by the time you sell (it would do this if long term interest rates rose). You could also lose money if the bank or building society got into trouble as no compensation scheme applies.

They are a Bond rather than a Share or Bank or Building Society Account. When a building society which has these shares converts to become a bank, the name is changed from Permanent Interest Bearing Shares to Perpetual Subordinated Bonds.

Who can invest Anyone.

How worthwhile These pay a high yield to non-taxpayers and basic rate taxpayers provided long term interest rates don't rise after you buy in which case they may become less good value. Compare with Bond or Stock Debenture and Loan or Bond or Stock Government Fixed Interest. Higher rate taxpayers compare with Bond or Stock Government Fixed Interest.

Minimum The bonds are dealt in minimum multiples of 1,000, 10,000 or 50,000. So the minimum investment depends on the price of the bond. £1,000-£2,000: Britannia, Bristol & West, Coventry, Halifax, Leeds & Holbeck, Newcastle, Northern Rock, Skipton. Around £20,000: Bradford & Bingley. Around £100,000: Cheltenham & Gloucester, Halifax. Some of these have been redeemed.

Maximum None. But some shares may be in short supply and a £20,000 maximum in any one share would be sensible for an individual.

Suitable Lump sums.

Money back About 10 days. You get the market price at the time you sell plus or minus accrued interest . Three of the stocks have redemption dates - these are two of the three Halifax stocks 30 January 2022 for one stock and 14 September 2023 for another and the Portman 5 December 2021 when they will be redeemed at a price of 100.

Interest Fixed. The rate at which the bank or society pays is called the coupon. But the return you get is determined by the price you pay, which sets the yield. When the market price is above 100, the yield is less than the coupon. The stocks with redemption dates have a redemption yield which is currently lower than the "flat" yield.

Interest paid Usually half-yearly by cheque or direct to a bank or building society account.

Tax No tax is deducted from the interest. Taxpayers have to pay tax by declaring the interest on their tax return. Gains made on trading the bond are exempt from capital gains tax but losses are not allowable.

Fees to pay Stockbrokers commission when you buy and sell: On first £20,000 ¾% to 1%; less on larger amounts, minimum £17-£25. Some may charge more, e.g. 1½% on first £7,000. Same when you sell.

Passbook Share certificate issued.

Children Under age 18 shares should be held in an adult's name but can be designated with the child's name.

Risk There is no compensation scheme. The bank or building society can stop or miss interest payments. Possible capital loss if interest rates rise and the market price of your shares or bonds fall.Three of the banks which have issued these bonds have got into trouble and the risk of the bonds may have changed - see UK Shareholder' Association page about this.

How to invest Ask a stockbroker which building society's Permanent Interest Bearing Shares or which bank's Perpetual Subordinated Bonds offer the best yield. If you want to invest a large amount, spread your investment between different institutions. A list of bonds and yields are published weekly in theFinancial Times (Databank page) or The Times personal finance section. See also this list from Income Investor.

Where from Stockbrokers. Most of the original building societies have been taken over or merged but it is likey that the stocks still exist although they may be difficult to buy and sell.


Other Bank and Building Society Accounts
Other types of bond or stock

Last updated 14 January 2012