Top 10 financial scams you should watch out for

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By Mark Burton
Know Your Money Editor

1) Loans which cost more than they could be worth
The official Bank of England base rate may lie at 0.5 per cent, but personal unsecured loans currently do not reflect this level. Recent figures show that even for low loan amounts such as £5,000, the annual percentage rate (APR) for such borrowings remains high.

Nationwide revealed earlier last month that the typical APR for a £5,000 loan from itself was 7.7 per cent. Indeed, the advertised headline rate for such a low amount loan from HSBC stood at 16.90 per cent, Barclays offered a 14.90 per cent APR for the same amount of cash, while HBOS required consumers to fork out 17.40 per cent in APR in order to get their hands on £5,000.

2) Credit card allocation of payments
Credit card lenders will often ask consumers to pay off their smallest debt first, leaving higher plastic debt interest rates to continue to soar, piling up the balances of Britons. Indeed, this tactic ensures that lenders can reap the benefits of thousands of pounds being paid in high interest rates.

Peter Sargent, president of R3, the insolvency trade body, says: "You will find the most expensive debt will be the one with the highest interest, but what seems to be happening is that people are borrowing on their credit cards and paying off mortgages, which is wrong because credit card debt costs more to service."

3) Something fishy about phishing
Phishing is where an email is sent from a bogus address posing as a bank and asks a consumer to fill in their password. But when Brits click on the so-called genuine link, they are instead taken to a scammer's website which copies their secret details and uses them to access a bank account.

James Jones of credit reference agency Experian, tells the Guardian: "Historically, scammers used to target wealthier, high-flying professionals because the rewards were potentially higher. But now young, single renters are top of their hit list."

4) Introductory savings account bonuses
David Black, banking specialist at Defaqto, says: "It has been apparent for a while that the instant and easy access accounts mentioned in the various best buy tables all have introductory bonuses."

However, while introductory saving rates can draw people in, many accounts levy charges should people decide to take money out, or reduce the interest rate month-by-month. Brits should make sure they are fully aware of the conditions or they could end up forking out for switching.

5) Payment protection insurance (PPI)
This type of cover has widely been sold to Brits at the same time they take out a new credit card or loan. The product is supposed to meet their financial commitments should an illness or redundancy mean they can no longer make repayments. But consumer watchdog Which? says many people have been pushed into buying PPI when they are supposed to be given breathing space to make a decision.

Which? chief executive Peter Vicary-Smith, states: "PPI has been widely discredited, so it's important that it's sold separately from other financial products to help consumers make informed choices about how best to protect their finances."

6) Travel insurance for older holidaymakers
New research from Saga shows that people over the age of 70 are not eligible for travel cover with HSBC, Halifax or Barclays. Furthermore, unless pre-existing medical conditions are declared, many banks' travel insurance will not cover any illnesses that should arise from conditions. Alliance and Leicester and Lloyds TSB will not cover customers once they pass 79 years old. Should something occur on a getaway, older Britons could find they have to dig deep into their pockets. Shopping around for the right insurance cover could be a wise move to make.

7) Questionable broadband speeds
Britons may fork out for faster internet speeds but in reality, they end up with sluggish connections, Ofcom previously revealed. One of the worst performers was AOL's up to eight megabits per second (Mbit/s) package, where the speed was as low as 3.3 Mbit/s. BT's same package achieved a maximum speed of 4.2 Mbit/s.

8) Home heating gives pensioners the cold shoulder
Age Concern and Help the Aged revealed that poorer pensioners have cut back on their fuel consumption by seven per cent, despite increasing their spending on this by almost a third between 2004-05 and 2006-07. In 2007, the poorest fifth of seniors had to spend nearly 40 per cent of their budget, after housing costs, on food and fuel.

Andrew Harrop, head of public policy at Age Concern and Help the Aged, states: "Not only does this demonstrate the problem of soaring energy costs in recent times, but is a warning to policy makers and others that vulnerable older people could be putting their health at risk in winter just to cut costs."

9) Dodgy doorstep lenders
Hertfordshire Trading Standards has vowed to clamp down on loan sharks and doorstep lenders because of the extremely high interest rates that such people charge cash-strapped families. The department said that recent court cases show how more dodgy dealers are being prosecuted after harassing households which could not meet their sky-high demands. But with banks reining in lending during the recession, some families have felt forced to go to a loan shark for help.

10) PIN fraud
Many Britons continue to dish out their PIN numbers to other people in order to make a purchase on their behalf or to take cash out of an ATM. But a quarter of these trusting individuals have fallen victim to fraud. LV= notes that fraudsters can quickly make thousands of pounds worth of purchases by cloning a card. But many banks may refuse to refund card owners if they had shared their PIN with others.

"It's concerning to see the numbers of card-holders who are so lax with their card details, even if they are sharing them with their friends and family," asserts John O'Roarke, managing director of LV= home insurance.

Important Notice
This guide is intended for general information only and is not intended as, and does not constitute, any form of advice, recommendation or endorsement by us of any particular product(s) or services and you should rely on your own further research and professional advice in relation to your specific requirements and circumstances before purchasing any products or services. Use of this guide is subject to the Terms of Use of the KnowYourMoney site.