How to spot an investment scam

As people turned to the internet to help them with everyday tasks during the pandemic online scams and fraud soared. Just last year consumers reported losing £2.3bn due to online scams and cases of fraud reported to the police rose by a third in 2020, reaching more than 410,00 according to analysis by consumer rights group Which?

During the course of the pandemic, scams over the phone and text grew the fastest and consumers lost the most amount of money through investment scams, roughly £535m in the past year. We’re going to take a look at investment scams so you know how to spot them and understand what the most common scams are.

How can you spot an investment scam?

An investment scam is when someone offers you a compelling and believable offer to make a profit after you hand over a sum of money, but this offer is fake.

There are three main types of investment scams

1. A fake investment that doesn’t exist 

2. The investment exists but the scammer takes the money instead of putting it into the investment 

3. The scammer pretends they’re representing a legitimate and trusted investment group, but they’re lying

Tips for spotting investment scams

1. The investment company isn’t registered on the FCA website. The FCA is the Financial Conduct Authority and any UK company must be authorised by the FCA to offer these types of services. Check out this warning list from the FCA. 

2. Someone calls you out of the blue to sell you one of these investments. They might contact you via a cold call, a text message, on social media, email or brochure. 

3. This one is obvious but can be hard to remember, if it feels too good to be true, it probably is. If they downplay or don’t even mention the risks whilst emphasising the investment it could be a scam.

The most common types of investment scams 

If someone is offering you an investment on one of the things below make sure you are really careful before agreeing to anything.

  • Unregulated products like gold, diamond, wine, student accommodation and parking 
  • Pension scams. If any scheme is offering to help release money from your pension before your 55, you might not see that money and get hit with a big tax bill.
  • Holiday homes. It’s common for scammers to tempt people into investing in overseas holiday homes but they don’t actually exist.
  • Ponzi and pyramid schemes. This is where money from new investors in the schemes is used to pay former ones. 

What to do if you think an investment scammer has contacted you:
Hang up straight away and stop any further contact with the scammer 
Report the scam using the Which? Guide here