PIBs

jay3_2

Does anyone out there own any PIBs, or have a view as to their suitability as a medium to long term means of income? Some of the yields are mouth-watering, but of course anything that looks too good to be true....

Rafter

Jay,

The main problem with PIBS is that there is not a very liquid market in them, so selling them at short notice might be difficult/impossible.

Second thing is that they are like shares and could lose their value if the Building Society they are with ceases to exist.

The price you pay will often reflect the yield and the risk of the society too, so although you might get say 12% interest, you might have to pay more than 100% of the shares face value so the real yield will be less.

Personally if you already have a good spread of investments and ISAs and are looking to improve your yield on funds that you could afford to lose then, like shares, the yields are hard to ignore.

R.

jay3_2

Thanks - the illiquid market is certainly a concern. I just have a nagging sense that the yields have been forced up too high relative to the risk, and this is making PIBs look quite attractive, especially in todays's low interest/low inflation environment.

baby_boomer

If the government printing presses unleash inflation, just watch your capital values plummet.

Bid/offer spreads of up to 8% are fairly common - which give an immediate "loss" on purchase.

baby_boomer

Building soceties can also suspend your interest/dividend payments if they see fit. (Imagine what that'd do to the value of all PIBs if even one society decided not to pay).

And societies are going to be on the receiving end of some heavy losses from mortgage arrears in the next few years, so it could become an issue.