How to Protect Yourself from Financial Scams

Financial scams are becoming more sophisticated every year, targeting individuals through phone calls, emails, texts, and even social media. Learning how to identify and avoid these scams is crucial for protecting your identity, your money, and your peace of mind.

Let’s go over how to spot common scams, what red flags to look out for, and the steps you can take to keep your personal finances secure.

What are Financial Scams?

Financial scams are deceptive practices designed to trick individuals into giving away money, personal details, or account access.

These scams can take many forms—phony offers, fake IRS calls, fraudulent investment opportunities, or phishing emails pretending to be from a trusted company.

Scammers often pressure victims into acting quickly, hoping to catch them off guard before they realize it’s a scam.

Common Types of Financial Scams

Understanding different types of scams can help you recognize them early before any damage is done. You will most commonly encounter scams via phone calls, text messages, and emails. Below are some of the most common types of financial scams you may come across: 

Phishing Scams

Phishing scams involve fake emails, text messages, or phone calls that appear to come from legitimate organizations like banks, online retailers, or government agencies. These messages often include urgent warnings or tempting offers and ask you to click a link or provide personal information such as your login credentials, Social Security Number (SSN), or credit card details.

You might come across phishing scams in emails that look nearly identical to official correspondence from your bank, or text messages claiming suspicious activity on your account. These scams are designed to steal sensitive information or install malware on your device.

How to protect yourself: Never click on suspicious links or download attachments from unknown or suspicious senders. Always verify the sender’s identity by contacting the company directly through the company’s official contact information. Look for signs of phishing, such as misspelled words, strange email addresses, or an unusual sense of urgency.

Charity Scams

Charity scams exploit people’s generosity, especially during natural disasters, holidays, or national crises. Scammers create fake organizations or impersonate real charities to solicit donations, often claiming urgency or emotional stories to pressure people into giving.

These scams typically appear through phone calls, emails, social media fundraisers, or fake websites mimicking real charities.

How to protect yourself: Always verify the legitimacy of a charity before donating. Use trusted resources like Charity Navigator or the Better Business Bureau’s Wise Giving Alliance to research charities. Don’t give out personal or payment information over the phone unless you initiated the contact and know the charity is reputable.

Impersonation Scams

In an impersonation scam, a fraudster pretends to be someone you know (like a friend or family member) or an official from a trusted institution like the IRS, local law enforcement, or a utility company. They may claim a loved one is in trouble and needs money, or that you owe money and need to pay immediately to avoid legal action.

These scams often use phone calls, text messages, or social media to create a sense of urgency and emotional distress, pressuring victims into sending money right away and allowing for no time for you to verify the situation. 

How to protect yourself: If you receive an urgent message or call from someone claiming to be a family member or authority figure, don’t panic. Hang up and independently verify the situation by contacting the person or agency through official channels. Government agencies will never demand payment via gift cards or wire transfers.

Online Shopping Scams

Online shopping scams involve fake e-commerce sites or social media ads that advertise hard-to-resist deals on items like electronics, clothing, or luxury goods. Once a customer makes a purchase, they either receive a low-quality item, nothing at all, or find themselves locked into a subscription they didn’t agree to.

You may run into these scams through sponsored ads on social media, pop-up shops, or unfamiliar websites offering deep discounts.

How to protect yourself: Shop only from reputable websites. Check for contact information, customer reviews, real product photos, and clear return policies. Look for secure checkout processes (for example, URLs that start with “https”) and avoid deals that seem too good to be true. Use a credit card for added fraud protection when making online purchases.

Investment Scams

Investment scams promise big returns with little or no risk and often use high-pressure tactics to get victims to act quickly. These scams might involve cryptocurrency schemes, Ponzi schemes, or fake investment platforms where users are shown false profits to encourage more deposits.

You might come across investment scams through social media influencers, online ads, or unsolicited messages from unlicensed “financial advisors.”

How to protect yourself: Be skeptical of any investment opportunity that guarantees returns or sounds too good to be true. Check the advisor or company’s registration with the Securities and Exchange Commission (SEC) or your state’s securities regulator. Avoid sending money or personal information to anyone who pressures you to invest quickly.

Common Signs of a Financial Scam

Recognizing the warning signs is your first line of defense against financial fraud. Scammers often rely on speed, pressure, and confusion to trick victims into handing over money or personal information. That’s why it’s so important to pause and evaluate any unexpected communication that involves financial transactions.

• Unsolicited contact from a company or person you don’t know.
• Requests for upfront payments or sensitive information.
• Pressure to act quickly or threats of legal consequences.
• Deals or offers that sound too good to be true or come with no eligibility criteria.
• Requests to pay with gift cards, wire transfers, or cryptocurrency.

Whether you receive a phone call, email, text, or message on social media, being aware of common red flags can help you avoid falling for a scam before it’s too late. And understanding these warning signs empowers you to take control and protect your finances with confidence.

Tips to Protect Yourself from Finance Scams

Now that you understand the types of financial scams there are in the world, you’re ready to learn about the key tips to protecting yourself against these scams. Taking preventative steps can protect your identity, accounts, and finances.

Don’t Share Personal Information

Never share sensitive personal or financial information unless you’re sure of who you’re speaking to. Banks and government agencies will never ask for passwords or full Social Security numbers over the phone or email.

Verify the Source

Always verify the identity of the person or organization contacting you. Look up contact information independently rather than using the number or email provided by the caller or message.

Watch for Phishing Attempts

Check for red flags in emails or messages, such as misspellings, strange formatting, a sense of urgency, and suspicious links. Don’t click on links or download attachments from unknown senders.

Be Skeptical of Unusual Payment Requests

Legitimate businesses won’t ask you to pay with gift cards, money transfer apps, or cryptocurrency. These are preferred methods for scammers because they’re hard to trace and often irreversible.

Monitor Your Accounts Regularly

Keep an eye on your bank and credit card statements. Set up alerts for suspicious activity, and report unauthorized transactions immediately.

Use Strong Passwords and Enable Two-Factor Authentication

Protect your accounts by using strong, unique passwords with a mix of letters, numbers, and symbols. Avoid using common words or personal information as your passwords. For added security, enable two-factor authentication (2FA) on your accounts—this requires a second form of ID, like a code sent to your phone, to keep scammers out even if they get your password.

Check for HTTPS and Website Security Indicators

Before entering any personal or financial information online, make sure the website address starts with “https://” and shows a padlock icon to the left of the website address in the address bar. These signs mean the site encrypts your data. Avoid sites labeled “Not Secure” or with strange URLs, as they could be phishing attempts or lack basic protections to keep your private information safe. 

What to Do If You’ve Been Scammed

If you suspect that you've been targeted by a scam (or worse, you’ve already shared personal or financial information) then be sure to take immediate action to help minimize the damage and protect you from further loss. Acting quickly can help you recover lost funds, prevent identity theft, and alert others to the scam. Below are the key steps you should take right away if you believe you’ve been scammed.

Step 1: Stop communication with the scammer. Immediately cut off all contact to avoid giving out more information or falling deeper into the scam.

Step 2: Report the scam to the FTC, your bank, and local authorities. If you encounter a financial scam, you can report it to several trusted organizations:

• Federal Trade Commission (FTC): reportfraud.ftc.gov
• Consumer Financial Protection Bureau (CFPB): https://www.consumerfinance.gov
• Better Business Bureau (BBB): https://www.bbb.org/scamtracker
• Internet Crime Complaint Center (IC3): https://www.ic3.gov

Step 3: Change passwords and secure your accounts for email, finances, and any other services that may be affected. Use strong, unique passwords and enable two-factor authentication where possible.

Step 4: Monitor your credit for suspicious activity. Check your credit reports for unfamiliar accounts or inquiries. You can request free reports from all three major credit bureaus at AnnualCreditReport.com.

Step 5: Consider placing a fraud alert or credit freeze. A fraud alert notifies lenders to verify your identity before opening new accounts, while a credit freeze prevents new credit from being opened in your name altogether.

Final Thoughts

Staying informed and cautious is your best protection against financial scams. With the right knowledge and habits, you can recognize suspicious activity and take action before it’s too late. Trust your instincts, stay alert, and always verify before you share personal information.