Five common types of financial fraud

financial fraud

financial fraudAlmost half of the adult population of the UK has been targeted with financial fraud of some kind, while some three million people have lost out as a result, according to Office of Fair Trading research.

But the best way to avoid being taken in by a scam is to be aware of its existence. Here, we highlight five of the biggest financial scams that you need to know about…

1. Money transfers

Money transfer scams are perhaps the most common type of financial fraud, with the majority trying to dupe you into transferring money or handing over your personal details by promising a large cash return.

You might, for example, be contacted with the exciting news that a long lost relative has left you an inheritance or asked to help to release cash from a disused African bank account – in return for a nice chunk of the money.

In some instances, the scam could even involve an e-mail that purports to be from HM Revenues and Customs (HMRC) offering you a large tax refund in return for your bank details.

But remember, if it looks too good to be true, then it almost certainly is. And that also goes for unexpected tax returns.

2. Boiler rooms

Boiler rooms are ‘brokers’ that peddle poor-quality, and in some cases non-existent, investments using high-pressure sales tactics.

Those behind these financial scams are known to target wealthier Britons, offering “once-in-a-lifetime” opportunities to snap up shares at bargain prices.

Unfortunately, however, the shares recommended by boiler rooms are almost always worthless. So if you are put under pressure to pay up or lose the opportunity for good, a hasty retreat is almost certainly the best course of action.

You can also report a suspected scam to the Financial Services Authority by calling 0845 606 1234.

3. Pyramid schemes

So-called pyramid schemes work by encouraging you to buy in and then get your friends, colleagues and loved ones to do the same.

However, while these schemes pay out to those who get in first, the ‘pyramid’ structure always collapses once the number of new members starts to fall. And even if you get your own money back, you may end up losing friends if they are not so lucky.

What’s more, you will have to deal with the guilt of knowing that you yourself were involved in financial fraud if you want to keep your hands on their cash.

4. Low-rate, pay-in-advance credit

It is always a good idea to shop around for the best possible interest rate on a credit card or loan, but unsolicited letters and emails offering rock-bottom rates – even for people with poor credit ratings – are unlikely to lead to you getting a good deal.

Instead, the ‘lenders’ will probably ask you to pay an up-front processing fee that is non-refundable, even if your application is rejected (as it almost certainly will be).

5. Lotteries

While many scams work by persuading people to part with a certain sum of money in return for a much bigger payout down the line, for example, there are also a lot that promise something for nothing.

Free scratch cards offering prizes, or text messages saying that you have won a lottery you never even entered should therefore be treated with the utmost caution.

After all, buying a ticket for the National Lottery only gives you on average a 1 in 13.9 million chance of winning the jackpot, so what are the chances of you winning the top prize on a lottery or competition you have never even entered?

So although you’re unlikely to get any quick wins, there are ways to save money on simple everyday expenses. For example, find out how to avoid credit card charges, how to reduce your household bills – and evern where you can get free money advice.