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Jul 29

What are the most common types of financial scams?

Reading Time: 3 mins

Financial scams cost UK consumers millions of pounds every year. With fraudsters becoming more sophisticated in their approaches and using more offline and digital touchpoints to target victims, being aware of the most common forms of scams and how to spot them can prevent criminals from stealing your money.

 

Phishing

Arguably the single most common form of financial scam in the digital age is phishing. It is defined as the fraudulent practice of sending “fake” emails with the view of gaining the personal information of a user. The information could include passwords or credit card numbers. Phishing schemes do this by pretending to be a reputable company or a legitimate source such as Apple, Amazon or HMRC.

Email scams will attempt to lure you in with a message that, for example, says a certain amount of money has been taken out of your bank account or that you need to click on a link and input your login details. The best guard against phishing scams is not to click on any links that appear suspicious. It is unlikely that a bank or company will contact you via email if there is a significant problem or issue.

You can also spot phishing by looking at the email address. A reputable vendor will have a recognisable address while scammers are likely to use a mixture of random numbers and letters. Legitimate emails will also address you by your real name rather than “sir” or “dear customer.”

 

Pension scams

The shakeup of the UK’s pensions systems in 2015 gave over 55s the opportunity to take large cash sums from savings rather than purchasing an annuity to access income. However, the new “freedoms” also had the side effect of increasing the scale and scope of pension scams. These are similar to investment scams, where malicious third parties contact potential victims by phone.

The warning signs for pensions scams are any frequent, unsolicited calls. If someone makes contact without a request, then treat it with the utmost suspicion. Also, be wary of anyone offering higher returns from a pension scheme. You can also log a report with the FCA or Action Fraud if you think you have been targeted.

 

Investment scams

Investment scams use similar methods to pension scams. Fraudsters often masquerade as a legitimate company but operate from overseas to cloak their operations. They will usually start by asking you to invest shares in a company, often with the promise of exceptional returns. They also attempt to pressure victims by pushing for quick decisions. Like pension schemes, out of the blue calls and overselling potential gains are the red flags.

 

Forex fraud

Forex scams are one of the most complex and varied forms of investment frauds as there are many forms of deception that third-parties use. They range from old fashioned Ponzi schemes to more technical forex signal seller and trading system scams. If you are an investor looking to trade currency pairs, you also need to be on the lookout for dishonest brokers who are not regulated and could potentially trade against clients.

Forex scammers use a variety of methods to target victims, including the phone, email and mobile apps. They also use techniques such as expectations of larger profits, low-risk entry and the need for urgent decision making to gain the confidence of unsuspecting investors. If you do your homework, you will be able to spot these scams and only trade with reputable brokers.

 

Courier and safe account scams

Courier fraud uses positions of authority to coerce victims into handing over bank card details. A scammer will purport to be a legitimate bank or a police officer and tell a fictional story about how you have been the target of a fraudster. They offer a veil of authenticity by asking you to call them back via the real number of your bank when actually they remain on the line and answer immediately.

Chip and pin details and account numbers are the targets for fraudsters with these scams, so never hand over any personal information. Safe account scams are an extension of courier scams. They involve the fraudster relating a story about how your local bank is being investigated and that you need to send money to a separate “safe account.

A few other financial scams to be aware of include advance-fee fraud, card-id theft, ticket scams, pharming and smishing and authorised push payment (APP) fraud. The latter involves the account holder authoring payments to other accounts. As of 2018, it resulted in £236m being lost in total.

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