PIBS: Earn 8% or more from a building society But earlier this year - following the Co-op's failure to buy a chunk of Lloyds Banking Group - problems with the mutual organisation's financial reserves emerged, leading to a proposed capital restructuring. The final outcome for bondholders is unclear but the prices of Co-op bonds crashed and the latest income payment - due last Wednesday - was suspended. The Co-op's blow was not the first problem faced by Pibs investors. A restructuring at West Bromwich Building Society in 2011 hit Pibs holders there; and there was disruption to the income paid to some Halifax Pibs investors in 2009 following HBoS's hastily arranged merger with Lloyds Banking Group. But when Pibs' prices fall, their yield - the "coupon" relative to the price - rises, making the returns more attractive. So as the Co-op news spread, investors in other Pibs sold up in fright. But a rally soon followed, as income-hungry investors returned to the market. Victoria Hasler, a fixed income specialist at Brewin Dolphin, the broker, said: "Pibs are an interesting instrument and clearly many have attractive yields. For clients hungry for income and prepared to take risk, they are very interesting. But she stresses the risks. Most issuers have the right to suspend income payments in extreme situations - which will obviously have knock-on effects for the bonds' price in the market. Bonds are sometimes described as "cumulative" or "non-cumulative." The description applies to how income is treated if it is suspended. If, after income payments resume, the issuer makes up the lost payments, the bonds are called "cumulative." Instances of deferred payments - as with the Co-op - remain uncommon. The other quirk is that Pibs often have "call dates," where the issuer has the option to repay the holder the face value. So if the bondholder paid more than the face value for the Pibs, and it is "called in" by the issuer, a capital loss could result. In most information provided by brokers about Pibs, it will be clear whether the Pib is either cumulative or non-cumulative. Any call dates should also be clearly detailed. Two other pieces of information are crucial: the gross yield and the "yield if called." The gross yield, or current yield, is a function of the income paid relative to the latest obtainable price. So, for instance, a Nationwide 6.25pc Pib changing hands today at 87p gives a yield of 7.18pc. That particular Pib has a call date of October 2024 at which point, if it chose to, Nationwide could repay all the bondholders - originally £125m were issued - the face value of £1 per Pib. The "yield if called" calculates the return you would get if you bought at today's 87p price and held the bonds until 2024, collecting income all the while and then receiving £1 per bond owned. In this case the figure is 8.02pc. As with other high-yielding investments, some weigh up the risks they are taking in term of the number of years they need to receive income in order to "get their capital back." With yields at or around 10pc, you would need the society to honour its promise for a decade. Ms Hasler said the bonds should be regarded as of a similar risk to shares. "In the building society world, where there are no shares, Pibs owners are the most exposed to capital risk," she said. They are at the bottom end of the capital structure, and we would warn our clients that as we have seen with the Co-op and elsewhere, they pose risk. What you need to know before you buy: To hold Pibs you will need an account with a major stockbroker like Barclays, T D Direct Investing or Hargreaves Lansdown. And you will have to deal by phone, rather than online, so find out how much this is going to cost. Dealing costs will reduce your yield. Before investing, follow Pibs' price movements online - for instance on the website of specialist broker Canaccord Genuity (canaccordgenuity.com) - or ask your broker for information. The price you are offered when you come to trade may be very different from that quoted in research, so ensure you know the Pibs coupon - for instance Coventry 6.092pc - so you can calculate the yield when you are offered a price. Pibs are thinly traded, partly because the issues were small (less than £50m is not uncommon) and partly because most shares are owned by other private investors who, for the most part, don't want to sell. So talk to your broker about when to buy, and how much you need to invest. Typically you will need to spend a minimum of £1,000, but you may need to invest as much as £5,000, depending on the Pibs.