8 Most Common Financial Scams (And How To Avoid Them!)

This is an image from the Indian crime drama series 'Jamtara' aired on Netflix based on real-life incidents. This was a clear case of credit card fraud. A group of young men in the Jamtara district of Jharkhand earns around 1 lakh every day through such financial scams.

Consider this, your years of savings, all your investments, how would it feel, if you lost everything in a single day. And all it takes is one phone call. This isn't just an isolated story happening in a rural village in India.

According to a recent report published by the Federal Trade Commission, US consumers lost more than $10 billion to financial fraud in 2023.

No matter where in the world you are, you are at risk of being scammed. They will come for you today or tomorrow.

And if you are not prepared, if you don’t know how to identify and avoid these scams, you will lose your hard-earned money.  So spend 10 minutes of your time here, so that when the phone rings, you know exactly what to do.

f the biggest mistake we can make when it comes to financial fraud is to think that we are too smart to fall for one. These scammers are professionals; they know exactly what to say to get us to reach for our credit cards. And given the right set of circumstances, anyone can be vulnerable. So, the first step to keeping ourselves safe is to accept this reality. And then the next step is to make ourselves aware of the common scams out there. While there are numerous methods scammers use, nearly all of them fall into eight primary types of fraud.

1. Phishing

Phishing usually happens online and involves fake messages that seem to be coming from legitimate institutions like banks or government offices.

Scammers trick you into sharing sensitive information like bank account numbers, credit card details, login credentials, personal information, and so on. And they often use scare tactics, like claiming there's a problem with our account and asking for our details to confirm who we are. Or they send fake links that lead to a phony website where they collect our information.

Later, they use this information to steal our identity or empty our bank accounts.

Another common tactic these scammers use is to use urgency to create a sense of panic. They might say we need to act fast to avoid a bigger problem. Don't fall for it. Don't panic. Take your time and analyze every form of communication you receive.

And keep this in mind: No financial institution will send you SMS and emails asking for sensitive information. If you still receive a suspicious message and aren't sure about it, look out for these red flags. Open the email and look at the sender's address.

If it’s a real message, it will come from a recognizable address such as 'noreply@bank.com'. Scammers won’t be able to send messages from a real domain name, so the email addresses will be filled with random letters or numbers, such as ‘noreply@1234.bank.com’, or have subtle spelling mistakes like “” HBSC instead of “HSBC”. Now look at the greeting. Scammers often use a general greeting such as "Dear Sir," "Dear Madam," or "Dear Customer." Legitimate emails will use your name. And in no circumstances click on the links in the email or provide your confidential details, no matter how legitimate they appear. If you think there might be any issue, visit the official website directly, log in, and check for any problems. Or, reach out to the company directly using their official contact information and verify the details.

2. Imposter Scam

This is similar to phishing, where scammers try to pretend as someone else, but their goal is not just to steal your personal details; but to directly extract money from you. For example, in Europe, many foreigners have received calls from individuals claiming to be from Interpol. These callers say there's a problem with the person's residency permit and threaten deportation unless a payment is made. Similar calls could come from police, government employees, or tax authorities.

And now, with Artificial Intelligence, things have taken a new turn. With AI generative tools like Sora, it's becoming increasingly easy and affordable for scammers to create fake audio and video. In a recent case in India, scammers used deepfake technology and tried to steal Rs 40,000 from a middle-aged man.

The victim initially got a video call from an unknown number and the person on the call looked like one of his former colleagues. The caller even mentioned the names of some of their common friends. However, a few minutes into the call, the caller requested the victim for Rs 40,000 for immediate assistance for a relative in the hospital. Wanting to help his friend, the victim initially sent the money, but then later got suspicious and informed the police.

If you receive such calls, try not to be rushed into acting right away and never give out information or send money. If someone asks for money or personal details, offer to call them back. If the caller claims to be someone you know, confirm their identity by asking a question only they would know the answer to.

3. Romance Scam

This type of scam is also called the "Sweetheart Scam," but there is nothing sweet about it. It can leave you not only financially devastated but also heartbroken. This type of scam often happens on dating websites or apps where scammers create fake profiles and pretend to fall in love with you. After gaining your trust, they might ask for money to pay for sudden medical bills or travel costs to visit you. They will continue asking for money until you stop sending it, at which point the love of your life will disappear.

These scammers typically have a few things in common: they all live far away and refuse to meet in person. So if you've met someone online, take steps to verify their authenticity. Go through their social media profile, photos, comments, and other information in detail. Never send money to people you haven’t met in person, even if they claim to be deeply in love with you. And finally never mix online dating and investment advice, if your online love starts talking about cryptocurrency, then run for your life.

4. Employment Scams

There are various job scams out there. In most cases, scammers often post fake job ads and some even go to the extent of conducting faked interviews.

But once you get the job, they may ask you to pay upfront for training materials or fees for visas and accommodations. The COVID pandemic has led to many such fake work-from-home schemes, promising easy money but requiring a registration fee upfront.

If the job is with a well-known company, always check the company's official website to confirm the legitimacy of the job posting. Additionally, search online using the company name or the person hiring you along with terms like "scam," "review," or "complaint" to see if there are any fraud reports. Remember, no legitimate company will ask for money upfront as a condition of employment; if they do, it's a clear red flag. Also, if the salary offered seems too good to be true for the type of work involved, it is likely a scam.

5. Classified scams

You want to buy a used iPhone. You find one at a very low price, on a second-hand platform. The seller requests an advance payment, and you transfer the money to them. Days and weeks pass, but your iPhone never arrives. The seller continues to send fake proof that they have supposedly shipped the item. One day, the seller's profile is suddenly deleted, and your money is gone forever. This scam isn’t just for products, a similar situation can occur when you buy tickets for a concert or sporting event. You might pay upfront for tickets that never arrive or turn out to be fake, and you only realize you’ve been scammed on the event day.

You can avoid getting scammed by following a few simple steps whenever you make an online purchase:

1. Research the Seller: Check if there are any reviews from other buyers. Search online using the seller’s name, and phone number for additional information. You can also look at their social media profiles to confirm their identity. If the seller has an email ID, send an email to see if it’s active.

2. Ask About Details: Ask the seller about their return policy and warranty. If they avoid answering or refuse to provide details, it’s better to walk away from making the purchase.

3. Assess the Website: Scammers can easily create professional-looking, but fake websites. Always verify the authenticity of the website before making a purchase.

4. Use Secure Payment Methods: Whenever possible, use a credit card to make purchases. Credit cards offer better protection against fraud compared to other payment methods. If the transaction turns out to be a scam, you might be able to get your money back through your credit card company.

6. Investment Fraud

Many people want to grow their money fast and easily. This is exactly what scammers exploit through investment fraud. Although investment scams vary, the underlying principle remains the same: you're introduced to a 'once-in-a-lifetime' investment offer that promises big returns in a short time. Since you are curious, you might start with a small amount like $50. A week or so later, the scammer shows you that your money has supposedly doubled. Now you are hooked, you start making even bigger payments of $500 or $1000. That’s when the scammers disappear with your money. Now scammers favor cryptocurrencies in such scams because they lack the same legal protections as credit or debit cards, and the payments usually can’t be reversed.

When you're considering a new investment, always do your research—it's your hard-earned money, after all. Don't give it away easily. No reputable company will suddenly call you with an investment opportunity. If you get an unexpected call like this, be very cautious. Verify if the company is registered for investment services and look up any complaints against them. Stay away from investments that claim to offer a high rate of return in a short time with little risk. If it sounds too good to be true, it probably is.

7. Credit Card Fraud

We talked about Phishing earlier. Phishing is just one method used to steal credit card information. However, there are other ways too. Criminals might physically steal our cards or capture our details from untrustworthy online platforms. Skimming is another common tactic where fraudsters attach a device to ATMs or card machines. Then when we use these devices, they can read our card’s magnetic strip and steal our information. Sometimes, it can take months before we realize someone has misused our card.

To protect yourself, always inspect ATMs before using them. Check for any visible damage or alterations. If the ATM keypad is unusually hard to press, it might indicate that a fake keypad has been installed. Always cover the keypad with your other hand when entering your PIN. You also have to take precautions when handing over your card to someone like paying in a restaurant. Always make sure that the card is swiped in your presence. Regularly monitor your credit card and bank accounts for any suspicious transactions.

If you notice anything unusual, report it to the bank immediately and freeze your card to prevent further unauthorized use.

8. Lottery Scam

Many of us have been approached at least once by someone claiming to be a Nigerian Prince who supposedly has access to a large sum of inheritance but needs help transferring it out of the country. They promise a significant cut for our help. However, there's a catch: we must first pay taxes or fees to access the money. Once we send the funds, the so-called prince disappears.

There are other variations of this scam involving lottery wins, jackpots, and other rewards. While the "Nigerian Prince" scam is a well-known fraud, if you genuinely win a lottery, make sure to confirm the details independently before proceeding. Always be cautious of any request to send money or provide personal information, as these are common red flags in such scams.

Scams are cleverly designed to catch us off guard, and anyone can fall victim to them. If it happens to you, remember that there's nothing to be ashamed of. It's important to act responsibly by reporting the scam to the authorities. This helps them take steps to prevent similar scams from happening to others. Always stay alert and proactive in protecting yourself against financial fraud.

I hope you got some value from this blog and will help you to avoid such scams and protect your money.

Disclaimer: The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. It is important to do your own analysis before making any investment.