Could unrealistic investment expectations leave you susceptible to scams?

A recent report suggests that more than half of UK adults have moved at least some of their cash savings into investments as a result of continuing poor rates of interest. With inflation rising and the Bank of England (BoE) base rate remaining at a historic low of 0.1%, the chance to combat inflation is likely to be worth the added risk of investment.

Inexperienced investors could, however, be leaving themselves susceptible to investment scams. This is because, of those surveyed, the majority confirmed that they would only start to worry about the possibility of a scam if the investment they were offered promised yearly returns of 10% or more.

While investing your funds rather than watching them effectively lose value in cash accounts is likely to be a good move, it is also important that your expectations are realistic and that you remain vigilant against potential fraud.

The FCA wants to reduce those holding more than £10,000 in cash savings by a fifth

The pandemic saw a rise in “accidental savers” as enforced lockdowns, and reduced opportunities curtailed spending for many. At the same time, as savings rates dropped and the base rate hit an all-time low, money held in cash was in danger of losing value in real terms.

This only became more of a worry as rising inflation hit.

Having breached the BoE’s 2% target back in May, the cost of living has continued to rise. By October it had reached 4.2%, with a peak above 5% possible by April 2022. Low interests rates and high inflation are a poor mix for savers, which is why the FCA has stepped in.

The FCA’s plans, as reported by the Telegraph, are to reduce those savers holding more than £10,000 in cash by a fifth. It is anticipated that this will lead to an extra £17 billion heading into investments, spread between 2 million individual investors.

The chance to make inflation-beating returns has already led many to turn to investments, but could these new investors find themselves falling victim to scams?

Investment scams are on the rise

March 2020 saw a huge surge in scams as the coronavirus pandemic took hold and the nation headed into its first lockdown. Action Fraud saw a 400% increase in reports for that month alone.

While scam numbers might have been expected to fall as the country emerged from lockdowns, this hasn’t been the case.

Scam enquiries to the FCA January 2017 to January 2021:

Source: The Telegraph (sourced from the FCA)

For the first half of 2021, UK Finance reports that investment scams rose by 95% compared to the same period the previous year.

Due to this, the FCA has launched another initiative alongside its bid to get people to invest. It will be spending £11 million on a campaign to warn consumers about high-risk investments. It hopes to halve those with holdings in volatile assets like bitcoin, reducing investor numbers from 3.2 million to 1.6 million.

It is important to remember that investment scams are out there and to be alert to these red flags:

  • Any form of cold-calling, whether by email, text, or telephone, especially about your pension, as this was banned in 2019
  • Offers to take your pension early or any promise of higher returns using phrases like “guarantee”, “free pension review”, “savings advance” or “loophole”
  • Time-sensitive offers designed to rush you into making a hasty decision
  • Unusual and high-risk investments that are often overseas, and so not regulated by the FCA.

If you are contacted by a company offering an investment opportunity, be sure to check the FCA register to ensure that they are regulated and authorised to carry out the process they are offering. Also, check the FCA’s ScamSmart site for further tips.

You can contact Action Fraud directly if you think you have fallen victim to a scam. Visit www.actionfraud.police.uk or call 0300 123 2040.

Expert Wealth can help you build and manage your investment portfolio

At Expert Wealth, our Chartered financial planners can help you make the most of your money. In the current climate of low savings rates and high inflation, investing is a great way to see potentially inflation-bearing returns.

We can help you understand your investment goals, attitude to risk and capacity for loss, and build a diversified portfolio while also keeping your money safe from unscrupulous scammers.

Get in touch

If you would like to discuss investing for the first time or would like to check in with any aspect of your current investment portfolio, please get in touch and speak to us today.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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