Not every scam is like the complicated set-up in The Sting.
Con jobs can nickel and dime you over time, like the slow leak of management fees from a long-term buy and hold retirement account. Or they can wallop you at the most inopportune moment, like when an overdrawn account turns a $1.50 bottle of water into a $36.50 bottle of water.
Brokers, bankers and card issuers are supposed to work for you, not against you. And yet they're not above perpetrating a host of scams, some outright illegal, and others within the law but unethical.
Luckily, you can learn to spot the scams. Here are seven of the most common ways the people you thought you could trust are picking your pocket:
Soaking Existing Bank Customers
Are you a long-time customer of your bank? If so, there's a good chance they're taking your loyalty for granted by overcharging you -- and then using the profits to lure new customers with lower rates.
Whether by charging you higher fees for checking or transactions or paying you lower interest rates on savings accounts, many banks milk existing clientele to subsidize incentives for new customers. Compare what you're paying to what your bank is offering newbies. If there's a large difference, switch banks.
Dodgy Interest Calculations
Most credit card holders don't know this, but there are many ways a card issuer can calculate interest owed. One of the nastiest little tricks, hidden in the fine print, is to use a late payment as a reason to jettison the interest-free period for new purchase transactions and then calculate the interest as far back as the original purchase date.
Another sneaky maneuver is to charge daily interest on the full purchase amount even if partially repaid on deadline. Read the fine print on your credit card statement. If the contract allows the card company to get away with either of these schemes, cancel your card and look for one that only charges interest from the date the new statement was produced.
Major Penalties for Minor Infractions
Penalties and fees have become a politically charged issue, with proposals in Congress to clamp down on abuses. Card issuers, banks, credit unions and other financial institutions charge penalties when you overdraw your account, fall beneath a mandatory minimum balance for debit purchases or commit some other relatively minor and usually inadvertent violations of the rules.
Late payment fees, overdraft fees and other penalties have skyrocketed, resulting in a windfall of billions for financial institutions. The solution: scrupulously balance your accounts and always pay your bills on time. You can also opt out of your bank's "overdraft protection plan." It will save you from hefty fees as long as you're willing to accept the risk your card will be declined if there's not enough cash in your account to cover a charge.
Excessive Retirement Account Fees
Average workers hang onto their 401(k) accounts for decades, following a "buy and hold" strategy that puts their plans on automatic pilot. Problem is, some 401(k) brokers charge exorbitant fees every year for performing almost no work. Over time, these high fees can deplete a large amount of money from your nest egg.
A common retirement plan rip-off: Unnecessary fees, such as for routine record-keeping, are assessed as a flat percentage of total assets. That means as your savings grow, more money is siphoned away from your fund despite the fact you're not benefiting from additional services. Again, read the fine print.
In addition to the obvious scam of charging excessive commission rates, stockbrokers can pump up their take-home pay (and deflate your brokerage account balance) through excessive trading, known as "churning". Brokers can be motivated to make a lot of trades because each one generates a commission, and they get to keep those commissions whether you buy or sell, or whether you make money or lose it. If your broker has discretion to trade your account, keep an eye on the activity.
Shady Mortgage Brokers
After reading newspaper accounts of the mortgage industry these days, you might think to yourself, "Dodgy mortgage brokers? Are there any other kind?" Well, actually, yes. It may require an almost Herculean effort, but you can still find an honest broker out there.
But here's a classic and increasingly prevalent scam perpetrated by the dishonest mortgage broker: Certain brokers operate in tandem with debt collectors to refinance debt-plagued individuals and families until the spending and debt consumes all of the home equity and additional refinancing is impossible. They pick the bones clean and then walk away.
An effective way to protect yourself is to look online, for unbiased and objective consumer reviews of mortgage brokers. The dodgy ones are likely to be flagged with complaints.
Currency Exchange at Airports and Hotels
Sure, currency transactions at airports and hotels is easy and convenient, especially when the kiosks or booths are located in plain sight, right in your path, when you're staggering around with jet lag. However, the commissions at the convenient locations tend to be ridiculously high.
Before settling on a choice, go online to calculate what you'll get charged in transaction costs. Here's a tip: credit cards tend to offer the most attractive exchange rates, because card companies have up-to-the-minute access to the best rates.
Unfortunately, these rip-offs aren't the only way you're being targeted. So read on to see why, in almost every situation, you should save your money and say "no" to these Five Financial Products That Are Absolutely Worthless.
- Create a retirement savings goal
- Design an investment plan to reach it.
- Get a professional money manager to continually monitor and rebalance your portfolio
Sound complicated? Don't stress. Vanguard's new robo advisor service can help you put all of this (and more!) on autopilot, all for an annual gross advisory fee of just 0.20%.