Pick Pibs to perk up your savings income

SEARCHING for income is a tough task these days – but a necessary one, particularly for older savers who depend on their investment returns.

Though interest rates in the US are moving up, the UK base rate is stuck at 4.5pc. It is rare to find a savings account offering more than 5pc – if you rule out the headlinethat offer unrealistic rates to suck you in.

You can do better in Pibs, the permanent interest bearing shares that several building societies have issued since 1991. Some still yield more than 6pc. This could last forever – many Pibs may never be redeemed.

This is Money’s website publishes a price and yield table (www.thisismoney.co.uk/pibs) – as does the Financial Times in its Saturday Money Databank page.

Pibs are bought through a stockbroker who charges commission. No stamp duty is charged on UK Pibs. You may have to be patient while your broker seeks prices from a market maker.

It can be worth the effort. Interest is paid half yearly with no tax deducted. Income tax is payable, but not if you buy through a PEP or ISA. That gives you the chance to earn a 6pc return tax free. Pibs are exempt from capital gains tax.

Here I must declare an interest. I hold two Pibs – Coventry and Principality – as long-term investments.

Pibs are not risk- free. Though they are shares, they behave like bonds. If interest rates rise, their price falls. If you think rates will rise enough to make 6pc returns unattractive, stay away. But if rates fall, capital values rise.

Not all Pibs last forever. Some societies can redeem them between 2014 ( Kent Reliance) and 2030 – at par, which is 100. Painful, as many are well above that price now. Our table shows those stocks where the yields to redemption date are lower.

Pibs are available from present building societies and former ones, such as Halifax and Northern Rock.

Our table is limited to he mutuals, on the grounds that if they demutualise, the value should improve a little. You might get even free shares, but this is a long shot.

If your Pibs issuer gets into difficulty, you could lose money. The Financial Services Compensation Scheme does not cover them.

So, though smaller societies are admirable, they are not suitable for all your nest- egg.

The minimum investment for those in the table is 1,000 shares, except for the Scarborough (2,500) and the Nottingham (5,000).

These are not short- term investments. Rik Edwards of Collins Stewart points out that preference shares can yield more to taxpaying investors.

But, sheltered in a PEP or ISA, Pibs can be a useful boost to your income.