Savers affected by the upcoming reduction in the cash individual savings account (ISA) allowance are being warned that they will become "prime targets" for investment scammers. The alert comes from Starling Bank, which anticipates that fraudsters will develop new tactics to exploit individuals seeking new places to deposit their funds.
Former Chancellor Rachel Reeves announced in November that the £20,000 cash ISA allowance for savers under 65 will be reduced to £12,000 starting in April. Bernadette Smith, chief banking officer at Starling Bank, noted that this change will leave many consumers with a surplus of cash. "They used to put that money in cash Isas," Smith said, indicating that these individuals will be actively looking for alternative savings or investment vehicles.
With the government's ongoing investment drive, it is expected that some savers will begin exploring options like equities, bonds, and funds. However, Starling Bank predicts that criminals will capitalize on these novice investors by targeting them with sophisticated scams. These scams typically involve convincing individuals to invest in schemes that promise unreasonably high or guaranteed returns with minimal risk, but which are ultimately worthless or non-existent.
Investment scams have seen a significant increase, with victims losing a record £221.5 million last year, according to data from UK Finance. This figure represents the highest amount lost to such scams on record, with reported cases rising by 26% to nearly 14,893. On average, victims lost approximately £15,000 per reported scam, though actual losses and case numbers could be considerably higher as not all victims report the incidents.
Smith elaborated that fraudulent schemes might include fake corporate bonds offering high or guaranteed rates of return. She highlighted that the current economic climate, marked by the cost of living crisis and a generally dire economic outlook, creates a "perfect storm" for scammers. Fraudsters may even present fake schemes designed to help savers bypass the new cash ISA cap or avoid the 22% tax charge on cash held in a stocks and shares ISA.
To avoid becoming a victim, savers are advised to be wary of unsolicited approaches offering deals that seem too good to be true. Cold calls, emails, texts, or social media messages about investment opportunities are often indicators of a scam. Typical scam tactics include claims of foolproof investments with guaranteed returns or assurances that investors will retain ownership of the underlying asset even if the deal fails. Scammers often promise returns significantly higher than those offered by legitimate investments.
Furthermore, legitimate ISA managers will not pressure individuals to transfer money. For those looking to invest surplus cash beyond the reduced cash ISA limit, the full £20,000 ISA allowance remains available for stocks and shares ISAs. It is recommended to open such accounts with reputable investment platforms and select investments carefully.