RETURNS of more than 7% before tax can be found on perpetual subordinated bonds (PSBs) offered by building societies that have converted to banks and permanent interest-bearing shares (Pibs) issued by building societies.

Similar to corporate bonds, they pay out a fixed income, and as the credit crisis has deepened the yields on offer have looked increasingly tempting.

However, advisers warn investors not to underestimate the risks involved. Societies retain the right to miss payments if they run into financial trouble and should an institution collapse completely, as Northern Rock nearly did, investors could end up losing their money. The investments are not covered by the Financial Services Compensation Scheme.

The rates on offer reflect the risk of investing in the underlying bank or building society. The higher the risk, the higher the rate. The Northern Rock PSB is currently offering nearly 15%, while Bradford & Bingley is paying 8%.

Mark Dampier of Hargreaves Lansdown, an adviser, said: “Pibs are quite volatile and have no maturity date, which means they do not offer the same guarantees as most other fixed-interest investments. The Northern Rock rate is so high it makes me wonder if it will be paid.”

The lack of a maturity date means that you have to find a buyer on the open market when you want to sell up, which could prove difficult – especially as minimum investment levels can be high. Most Pibs require at least £1,000, while you must part with £50,000 to gain access to some perpetual subordinated bonds.

Adrian Coles, director-general of the Building Societies Association, said: “They are not a good choice if you are likely to need the money invested in a hurry at some point in the future.”

Those keen to avoid this problem can opt for a Pib or PSB with a “call date”, on which the bank or building society will buy the shares back – usually at a rate of 100p per share. However, these call dates are often a long way off. Derbyshire’s Pib has a call date of December 15, 2016.

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