Seven scams to watch out for

How easily can you spot a scam? Here are seven swindles to watch out for.

Thanks to the joys of the Internet, not a day goes by without me receiving some kind of 'scam spam' promising me untold riches in return for a modest upfront investment. Here are seven swindles which promise a great deal more than they ever deliver:

1. Premium-rate telephone rip-offs

Personally, I have a real aversion to calling non-geographic numbers, so I stick to calling freephone numbers (0800 and 0808) and UK numbers which start with '01' or '02'. Nevertheless, premium-rate numbers flourish, offering everything from horoscopes to adult entertainment to big prizes -- at a cost of up to £1.50 a minute for 090 numbers.

If I were running the country, I would move quickly to ban those awful competitions and scratchcards which charge upwards of £1 as an entry fee. Recently, the news has been full of revelations about the shady (and downright fraudulent) practices of those production companies which make TV quiz shows and run phone-in voting lines. Frankly, your chance of winning is miniscule, but you could lose a fortune if you get hooked on these services. Avoid at all costs!

2. Advance-fee frauds and fake lotteries

Advance-fee fraud (also known as the Nigerian or 419 scam) works like this: you are promised a massive pay-off, usually millions of pounds, in return for a modest one-off fee or the use of your bank account. Usually, the conmen explain that this fee will be used to bribe corrupt officials, or to meet bogus customs duties or taxes.

Of course, what really happens is, at the first available opportunity, fraudsters will steal your life savings or empty your bank account. All the while, they will dangle the promise of a fortune there for the taking. Another variation on this theme is the fake lottery. Ask yourself, how can you possibly win a foreign lottery for which you've never even bought a ticket?

3. Boiler rooms

Watch out for calls from convincing salespeople urging you to invest in little-known stocks and shares. On almost every occasion, these calls come from boiler rooms which dump worthless or fictional shares on unsuspecting victims. That hot stock promising huge returns is sure to wipe out your savings, so don't take the bait -- hang up immediately.

By the way, I know several investors who have been cold-called recently with offers to buy their small-company shares at vastly inflated prices. The catch is that they have to pay a fee to access this 'exclusive buyout', so this is simply another variant of advance-fee fraud.

Only firms regulated by the Financial Services Authority can offer investment services to the British public. You can check a firm's registration here.

4. Make a Million seminars

Am I the only person who is utterly fed up with get-rich-quick advertisements which promise to make me a mint by investing in property or shares? The only people who get rich from these courses are the organisers, who charge thousands of pounds for their 'inside secrets'. Often, these foolproof tips turn out to be basic common sense, or even complete hogwash. If you want to learn how to get richer, you'll find all that you need right here on lovemoney.com.

5. Phishing emails and calls

Watch out for emails which appear to have been sent to you by a financial firm of which you are a customer. The same goes for callers who claim to represent your bank or credit-card company. In most cases, these 'phishing' attempts are aimed at grabbing personal or financial details in order to defraud you. So, don't click on links in these emails; instead, delete them straight away. Also, if you're not sure about inward calls from your bank, call it back on the usual number. For more advice, visit the Bank Safe Online website.

6. Ponzi (pyramid or matrix) schemes

In 1920, a large number of Americans were conned by a now-infamous trickster called Charles Ponzi. Ponzi raked in millions from investors who were taken in by his promise to turn $100 into $150 in 45 days by trading in hoax 'postal coupons'. In reality, Ponzi used contributions from new investors to fund the fake returns to previous investors.

Although they have been outlawed, Brits are still being duped by similar pyramid schemes which promise large rewards for recruiting more suckers. Ignore the hype and avoid all proposals which rely solely on recruitment to generate returns -- unless you work as a recruitment consultant, of course!

7. Sham charities

I live in an area which is a particular target for charity collectors, both genuine and fake. Although I dislike the 'chuggers' (charity muggers) which confront me in the high street, I absolutely detest for-profit businesses which pose as registered charities. If a leaflet comes through your door asking for unwanted goods, check to see if the firm is a registered charity. If it isn't, then most -- if not all -- of your money will end up lining some rogue's pockets, instead of benefiting good causes. For more advice on this scam, read this warning from the Charity Commission.

Finally, these signs will help you to watch out for scams which prey on greed and ignorance:

1. They arrive via unsolicited emails, faxes, letters or telephone calls.

2. They ask you for money before you can claim your windfall/prize/inheritance.

3. They boast of guaranteed returns well in excess of 5% a year (the interest rate paid by a top savings account).

4. They don't explain precisely how these fantastic returns are created.

5. They rely on sucking in progressively more people in order to pay out and keep going.

6. They claim secret 'insider' knowledge (this is always the case for gambling and boiler-room scams).

7. They promise huge rewards in a short time with little effort (particularly home-working scams).

So, remember: guarantees of easy money are nothing but empty promises, and are sure to be phoney. Keep your wits about you at all times!

More: The five worst ID fraud scams! | This scam will ruin your life

This article was updated in May 2010.