Common financial scams explained: 8 scams to watch out for

Summary:

• Financial scams are getting harder to spot. Knowing what to look for can help you catch them before they cost you money.

• Taking a few extra minutes to verify unexpected messages, payment requests or investment opportunities can go a long way toward protecting your money and personal information. 

• Staying informed and keeping these tips in mind can help you avoid common scams and feel more confident managing your finances.

• In this article, you’ll find some of the most common financial scams explained along with recommendations from our experts on how to recognize and avoid them.

Whether you feel well informed about financial scams or are just starting your research, ongoing education is one of the best ways to help keep yourself safe. Times change, technology evolves and scammers learn new ways to deceive people.

A financial scam occurs when a fraudster tricks you into sharing your personal or financial information or providing direct access to your money. Scammers often use sly tactics, including urgency, pressure or threats. 

Below, we share some of the most common financial scams, explained by our experts, along with recommendations on how to avoid them.

Many scams today involve an imposter—someone pretending to be someone or something they’re not. Christine Kieffer, senior vice president, office of investor education at the Financial Industry Regulatory Authority (FINRA), explains that imposter scams often rely on “source credibility by exploiting familiarity or claims of expertise to build trust.” An example of this is investor imposters.

In this scenario, scammers will use the names of real registered investment professionals or investment firms to seem trustworthy. They’ll create a fake website, share invitations on social media to join their “stock investment groups” or leave social media comments about how much money they’ve supposedly made with their investment strategy. They will link to a fraudulent website or an encrypted group chat to steal your information or lure you into making deposits into fake investment accounts.

Kieffer advises being alert for signs of fraud, such as guarantees, unregistered products, overly consistent returns, secrecy or pushy salespeople. Also, look for typos, misspellings and unusual phrasing in the supposed investor’s communications and website.

Tip: Website URLs or email addresses might seem real at first, but you should inspect them closely. Scammers frequently use substituted characters, such as the number “1” instead of the letter “l.”

Additionally, don’t trust what just anyone says. “Use FINRA BrokerCheck to verify the person who has contacted you is licensed to sell investments or provide investment advice and to check for any disciplinary or complaint history,” Kieffer says. You might also want to call your bank, broker or investment advisor for another opinion. Be sure to use a number you know is real—for example, one from a bank statement.

Other fraudsters make a personal connection to win over potential so-called investors. According to Kieffer, FINRA has seen a large increase in relationship investment scams. “These are among the leading scams reported to the FBI and are likely underreported,” she says.

The fraudster often starts by messaging you by text, email or other messaging app and claiming to have dialed a wrong number. They’ll then strike up a conversation and might direct you to an encrypted messaging service or app to keep talking. Over time, they’ll try to gain your trust. “This is a long con,” Kieffer says. “Over the course of days, weeks or months, they’ll work to develop a friendship or romantic relationship.”

Eventually, they’ll bring up investment-related topics. Conversations will become more specific as the scammer pitches an enticing and fraudulent “investment opportunity” and tells you where and how to deposit your money.

“Initially, the investment will appear to increase significantly,” Kieffer explains. “Scammers might cite fake numbers or share a falsified dashboard showing impressive growth. The goal is to boost your confidence and encourage larger and larger investments.”

If you try to withdraw your funds after making an “investment,” you’ll hit a wall. The scammer might say you need to pay fees or taxes to do so. Either way your money will remain out of reach, and eventually your “friend” will stop responding and disappear with your money.

Tip: To protect yourself from relationship investment scams, don’t answer messages from people you don’t know, regardless of how they contact you, Kieffer says. “Do not respond in any way. Don’t worry about seeming rude—prioritize protecting yourself.”

As with many scams, the key to avoiding these fraudsters is slowing down and considering their motives. Don’t make immediate decisions or take hasty actions. Use someone you know in person and trust to get their opinion. “They may be familiar with the situation and recognize it as a scam, or you might notice red flags as you talk through the pitch,” Kieffer says. “Take time to verify anything and everything you can before you act.”

They say love hurts, but it can be twice as painful when financial fraud is involved. Millions of people use dating apps and websites to find romance. Although many people using these services are legit, scammers also take advantage of these channels. Keep your eyes open to questionable behavior.

Similar to the relationship scam—but typically without the “investment opportunity” angle—a romance scam often begins with a fake profile. Unexpected private messages on social media typically follow, the Federal Trade Commission (FTC) says. This is another long con that begins with bad actors striking up a relationship to build trust before eventually finding ways to steal your money.

One of the first warning signs is their inability to meet in person. According to the FTC, being on a faraway military base is the most popular excuse, but fraudsters also commonly claim to be offshore oil rig workers.

Romance scammers’ favorite lie, per the FTC, is that they need your money to help someone close to them who is sick, hurt or in jail. Alternatively, they might request money to visit you or pay for a visa. Be extremely wary if they ask for money.

Tip: There are plenty of steps to take if you’re at all suspicious. For instance, you can try a reverse image search—uploading their photo to a search engine to see if it appears elsewhere under a different name. If the image results come back with details or names that don’t make sense, it’s likely a scam. Once you suspect a romance scam, immediately stop all communication with the person.

These don’t just pick up during the holidays; gift card scams are dangerous year-round. To convince you to buy the cards, fraudsters might pretend they’re from the government and say you owe taxes or fines that must be paid immediately via this “convenient” method. Scammers might claim they’re tech support at a company who can fix a supposed problem with your computer—if you pay them first. They might even say you’ve won a prize, but you must pay shipping fees with a gift card to collect it.

“Don’t believe anyone who says you need to buy gift cards to fix a problem,” Kieffer says. “Real businesses and government agencies will never do that.”

According to the FTC, scammers will tell you specifically which cards to buy and from where. That’s a sign that something’s wrong. Then, they’ll ask for the card numbers and PINs so they can access the funds you loaded onto them.

Bank account fraud can happen in various ways, including ATM skimming and phishing. Thieves committing ATM skimming install hidden recording devices on the machines, allowing them to capture your card PIN and/or the data on the card’s magnetic stripe. Phishing is a scammer pretending to be someone you trust, like your bank or an online retailer, to get your financial information.

The result is that your bank account is compromised, meaning scammers now have access to your money. It’s a form of identity theft. Fraudsters can pretend to be you on the phone or online, draining money from your accounts and opening new accounts in your name. But, there are ways to protect yourself.

“If you receive a text or email claiming to be from a familiar brand, check to see if the number or the email address is truly associated with the company before you engage. Look for misspellings of names or inappropriate addresses,” Kieffer says.

Tip: If you’re an account holder with the company, there’s an easy solution. Kieffer suggests reaching out to them in a way you regularly do—like the app on your phone or the phone number from the brand’s website—instead of trusting whatever method the scammer used to first contact you.

It’s also important to keep a close eye on your accounts. By monitoring them regularly, you’re more likely to notice when something doesn’t look right and be able to take immediate steps to address it.

Additionally, there are habits you can adopt to help ensure your bank accounts stay secure. These include frequently changing your password, changing your login requirements to support Touch or Face ID and choosing paperless statements to keep sensitive information in digital form.

Unfortunately, your physical card doesn’t need to be lost or stolen for you to be a victim of credit card fraud. This is the unauthorized use of your credit card information to make purchases or withdrawals. There’s no way to be completely safe from this fraud, as criminals might clone, or copy, your card or hack your computer to access your information. But there are actions you can take to help prevent this.

Tip: Your bank can be your partner in monitoring your account for fraud. Sign up for fraud alerts so you’re notified quickly of any unusual activity on your credit card. Unusual activity that could trigger an alert includes out-of-the-ordinary spending, a large purchase or international purchases. If you have fraud alerts enabled, occasionally you will be asked to verify it’s you when making a purchase. This is one way you know your bank has your back.

Also, keep your physical cards in a safe and secure place—think about where you keep your wallet to avoid pickpockets—and immediately report any lost or stolen cards to your credit card issuer. Don’t share your credit card number or other sensitive information over email or instant messaging, and avoid falling for phishing traps.

Your phone rings. Maybe it’s the middle of the night or early in the morning when you’re less alert. The voice on the other end sounds like your granddaughter, who says she’s in legal trouble. She says she’s embarrassed, begs you to keep the emergency a secret and asks you to immediately send funds.

Kieffer explains that this is how family emergency scams play out. The call could sound like any family member. As artificial intelligence becomes more mainstream, voice mimicry—where AI copies someone’s voice to sound just like them—“can be alarmingly accurate,” she says. The scammers might ask you to deposit funds in a cryptocurrency ATM. However, she says authorities are increasingly seeing instances where victims are told to put large amounts of cash in a shoebox to be picked up by another person. Sometimes, even this person might not know they are working with scammers.

How can you protect yourself? Many scams prey on our fears, Kieffer says, and family emergency scams are a perfect example. “When our emotions are heightened, we tend to bypass the rational side and become more likely to act on impulse.”

Tip: As hard as it might sound during a possible emergency, it’s important to slow your decision-making before taking any actions that involve your finances, Kieffer says. The FTC recommends hanging up or telling the person you’ll call them right back. If you aren’t comfortable hanging up, ask a question only the real person would know, like “Where did we last spend time together?”

Once you’ve ended the call, phone or text the family member back using a number you know is correct and ask if they’re really in trouble. It’s a good idea to also call another trusted family member or friend who can help you figure out whether the story is true.

You’re the lucky winner! Or are you? You’ve received a call, message or email congratulating you on a sweepstakes win. Although there are actual sweepstakes, prizes and lotteries, there are also fake ones designed to fool you.

So don’t let the excitement of “winning” make you do something you’ll regret. The first thing to do is ask yourself whether you actually entered any contests. If not, this is most definitely a financial scam.

But maybe you’ve played the lottery recently, so it’s not as immediately obvious. Are you being asked to pay something in advance to get the prize? Whether they claim it’s a fee for taxes, shipping or processing, don’t believe it.

The same goes for if they claim to need your bank account number or credit card number before you can collect your winnings. Stop and ask yourself why that would be the case. Again, slow down.

Tip: Never click on any links provided in the message, Kieffer says. If it’s a scam, those links might be designed to steal your information or download malware, which is harmful software that can secretly infect your device and steal your information. Delete the message and flag it as spam without clicking on links or responding at all.

Unfortunately, fraudsters are increasingly creative, and this list doesn’t include all scams. But now that you’ve seen our list of common financial scams explained, here are three key takeaways to help you protect yourself.

• Trust your instincts: If a message feels emotional or slightly off, wait before responding. That pause is often your best protection.

• Verify before you act: Use official phone numbers or websites, not the contact info provided in a suspicious message. Real organizations never mind when you double-check.

• Use safe payment methods: Scammers request gift cards, crypto and wire transfers because they’re hard to undo. If someone insists on these, it’s a strong sign to walk away.

Hopefully, with attention to detail and the right prevention, you’ll never become a victim of a financial scam. But if you do, it’s important to report it to the relevant authorities. If you’ve been a victim of fraud, Kieffer recommends filing a complaint with the FBI Internet Crime Complaint Center and the FTC. They can work to find and prosecute the offenders and, ideally, keep others from falling victim to the same fraud.