Best Ways to Avoid Investment Scams
MADELEINE BRAND, host:
And now, our weekly conversation on money matters. Today, investment scams: how to identify them and avoid them, and here to talk about some of those common investment scams is Michelle Singletary. She's our regular guest on matters of personal finance. Hi, Michelle.
MICHELLE SINGLETARY reporting:
BRAND: Now, I understand the North American Securities Administrators Association released a list of the top trap for investors to watch out for, and what made the list?
SINGLETARY: Well, affinity fraud made the list again. This is where people--they might come to you at church and say, because I believe in God like you, you should invest in this scheme that is, 99.9 percent of the time, not legitimate. There are prime bank schemes, in which promoters will say that there are these prime bank instruments that only the rich know about, and now I'm going to tell you, so you can become rich.
Totally bogus. No such instrument. So, if anybody says prime bank or any combination of that, they're just a low-down, lying dog.
BRAND: You heard it here first. And what about any new scams on the list this year?
SINGLETARY: Well, there's a new item on the list. It's not a scam. You're familiar with CDs, certificates of deposit. You put the money in a bank, they guarantee you a certain rate over a certain period of time. Well, there's something called the equity index certificate of deposit, and you get it with a broker or a bank. The difference is that the return that you would get on the certificate is not guaranteed, so it's based on, say, a market index like the S&P 500, so, in other words, you might put in, say, $5,000.00.
Traditionally, you'd put that in a CD, and you'd get a certain return. Nowadays, it's not much at all, but they can't guarantee the return, because it's based on the stock market, and lots of people are signing up for that, not realizing that very important difference.
BRAND: So, it's not necessarily a scam insofar as just something that's just no widely understood.
SINGLETARY: That's right. You know, there are all kinds of new products coming on the market, and they sound like the traditional products that we're used to, but you have to be extremely careful and understand what it is, because some people, mainly seniors, might hear statistics of a deposit and think it's their, you know, the old kind of CD, and they may think that the return is guaranteed. And listen, with this product, you may not get a return at all, and if you're a senior expecting that return, that's pretty much of a jolt for you.
BRAND: So what can investors do to protect themselves?
SINGLETARY: You know, you say this over and over again, and it sounds simple, but you got to do your research, especially if you're signing up for a CD, because there's so many different kinds out there. You want to ask when does the CD mature. Unfortunately, there were some seniors who signed up for what are called Callable CDs with a mature date of 20 to 30 years.
Now, if you're 80 or 90 years old, you know, I would hope you would stick around that long, but the fact of the matter is you're probably not. Honestly, you need to ask what is the mature date. Get all the information. If you go to the North American Securities Administrators Association Web site, there's a checklist, particularly if you're going to buy a CD, that walks you through various questions you should ask. They may sound like simple questions, but you'd be surprised how many people sign up for these products and really don't understand what they're getting.
BRAND: Michelle Singletary writes the syndicated column, The Color of Money. She's also the author of the book, Spend Well, Live Rich: How to Get What You Want With the Money You Have. And she's our regular contributor on matters of personal finance. Thanks a lot, Michelle.
SINGLETARY: You're welcome.
BRAND: And if you have personal finance questions you'd like to ask Michelle, go to NPR.org, click on the “contact us” button, and please put Michelle in the subject line.