How to Avoid Financial Scams

Quick Answer

To avoid financial scams, be skeptical about anyone who contacts you asking for information or money. Shop only using traceable payment methods, such as credit cards, and take cybersecurity measures like updating your devices and not reusing passwords.

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Americans lost more than $10 billion to fraud last year, according to data from the Federal Trade Commission (FTC). That's a 14% increase from 2022. And certain types of fraud are growing at an even faster pace: Losses to investment scams grew nearly 21% year over year, with consumers' reported losses totaling over $4.6 billion in 2023 alone.

The goal of financial scams may be to steal money from your bank account, run charges on your credit card, take out debt in your name or steal other information or items of value. Because scammers are constantly evolving their methods and using the latest tech to orchestrate new assaults, avoiding financial loss requires staying vigilant. Here are nine ways to avoid financial scams.

1. Beware Unsolicited Communication

Financial scams often start with a criminal contacting you and claiming to be somebody else, such as a government official, a police officer or a loved one in distress. Caller ID spoofing can make these fakes highly convincing, and new AI scams use voice-cloning technology to trick victims.

Your best line of defense is to cultivate a healthy level of doubt. Never assume unsolicited communication is legitimate. The methods scammers use most often to contact their victims are email, phone calls and text messages. But social media and snail mail are also common points of entry.

Set a hard personal boundary to never give personal information or payments to anyone who contacts you to ask for it. Reach out to trusted institutions directly by looking up their contact information yourself.

2. Trust Your Gut

Trusting a gut instinct that tells you something just feels scammy can help you dodge fraud attempts. In fact, in a group of respondents who participated in a Better Business Bureau (BBB) survey in 2023, over half of respondents said they avoided financial loss because they "felt something wasn't right about the situation."

Part of cultivating that natural instinct comes down to staying aware of common financial scams and crimes. The most recent FTC data shows that these are the most often reported scams, in order of frequency:

  1. Imposter scams: Imposter scams are when criminals masquerade as representatives from trusted organizations or companies, such as the government or your bank. The most common imposter scams last year impersonated the U.S. Postal Service. Another example is a romance scam, in which a criminal assumes a false identity (also known as catfishing) and steals money from a victim who believes they're in a relationship with the scammer's false persona.
  2. Online purchase scams: These scams work by tricking victims into paying for products that either don't exist or are extremely low-quality or counterfeit versions. They may lure victims with surprisingly good prices for desirable brands.
  3. Sweepstakes scams: These scams happen when a fraudster contacts you claiming you've won a prize, but you have to provide sensitive information or pay money to collect it. In reality, there is no prize.
  4. Investment scams: These scams vary in their tactics, but they involve tricking you into buying assets, often using unrealistic promises for massive returns with little risk. One example is cryptocurrency scams, which had staggering median losses of $3,800 per victim last year, according to the BBB.
  5. Employment scams: Job-related scams prey on people looking for work. Scammers may advertise phony jobs online, then prey on applicants by asking them to send money for equipment or provide sensitive information (which can be sold on the dark web).

Learn more >> The Latest Scams You Need to Be Aware of in 2024

3. Don't Be Pressured Into Action

Scammers often contact their victims and apply intense pressure to act immediately. Their goal is to get you to fall into their trap before you've had the time to think about how to react.

The BBB classifies scams into these categories:

  • Carrot scams: These are scams that try to trick you into acting quickly by promising you an out-of-this-world opportunity, such as a free vacation or a massive cash prize. The catch is that you need to provide your payment information right now in order to "collect your prize," which is just a ploy to steal money from you.
  • Stick scams: These are scams that threaten you by saying something bad will happen if you don't take action right away. For example, scammers may claim you owe a tax debt and are going to go to prison if you don't pay. Or, they could call posing as a family member and claim to be stranded in a dangerous location, urging you to wire them money.

To avoid falling victim to financial scams, be wary any time someone contacts you and pressures you to act right away. When in doubt, hang up, do some research and contact trusted sources to verify the validity of requests.

4. Use Traceable Payment Methods

Scammers often ask victims to pay them using payment methods that are difficult to trace back to the criminal, making it almost impossible to get back your money. This should always be taken as a red flag: Reputable institutions don't ask you to urgently send them large amounts of cash, gift cards or wire transfers.

Stick to using traceable methods, such as credit or debit, when making purchases. Your best bet is to use your credit card because credit card issuers offer better protection and lower liability for victims of fraud.

5. Be Cautious With Links

Don't click on links that come to you from unknown senders inside text messages or emails. These can lead you to spoofs of sites that are designed to phish information or steal money from you. They could also download attachments that include malware.

If someone you believe is a trusted organization sends you a link, contact them directly to confirm that the link is legitimate.

6. Keep Your Devices Updated

Be sure to keep the software on your computer or phone up to date. Ignoring notifications to update your device puts you at increased risk of hacking. That's because developers include patches meant to strengthen weak points in security in system updates. Be sure you're not leaving yourself vulnerable by paying attention to and completing these updates routinely.

7. Avoid Public Wi-Fi

Getting onto public Wi-Fi to check up on your social media or get some work done may feel completely mundane, but it could provide an entry point for cybercriminals. In particular, logging in to your accounts means transmitting your credentials through an unsecured connection. That gives scammers an opening.

If you do need to access public Wi-Fi, using a VPN can make it more difficult for criminals to trace and intercept your information.

8. Don't Reuse Passwords

Experts always advise against reusing your passwords across multiple accounts. If you use the same password for several accounts, a scammer only has to gain access to one set of credentials to breach your other accounts. A password manager can help you securely keep track of many hard-to-guess passwords.

9. Shred Sensitive Documents

Avoid throwing mail or other documents that contain your personal information—such as your full name, date of birth and Social Security number—into the recycling or trash. Identity thieves may look through the trash to find information they can use to commit financial or credit fraud. Shred documents to dispose of them securely.

Monitor Your Accounts

Monitoring your financial accounts, including your bank account and credit cards, can help you spot fraudulent transactions and quickly report signs of financial scams.

You should also monitor your credit report for signs that someone is opening credit accounts in your name. If you find unrecognized or fraudulent information in your credit report, you have the right to dispute it with the three credit bureaus (Experian, TransUnion and Equifax). Sign up for free credit monitoring through Experian to review your credit report and stay informed with new credit alerts.

Learn more >> How to Check Your Credit Report and File Disputes