How to Avoid and Deal With Bank Fraud

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Updated: June 14, 2024

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Bank fraud can have a devastating impact on your financial health, potentially leading to significant monetary losses and damage to your credit score. This kind of fraud has become more prevalent with the widespread adoption of the internet and on-the-go banking solutions.

Unlike fraudulent charges on a debit or credit card, you have limited recourse if you inadvertently transfer money out of your bank account — so it’s especially important to understand how fraud works, how to avoid it and to act quickly if it happens to you.

Key Takeaways
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Bank fraud can take many forms, including identity theft, check fraud and online banking scams.

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Do not share your banking details, such as your account and routing numbers, with anyone who contacts you unsolicited.

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Quickly detect unauthorized transactions by regularly monitoring your bank statements and account activity. If you’re a victim of bank fraud, report it immediately to your bank.

What is Bank Fraud?

In 2022 consumers reported losing nearly $8.8 billion to various types of fraud, according to the Federal Trade Commission (FTC). The rise of digital and mobile banking has made banking more convenient, but has also opened new ways for fraudsters to scam people. Bank fraud is any criminal act where someone tries to compromise your financial accounts or profile. It includes things like identity theft, check fraud and online banking scams.

Online banking scams often involve phishing emails or fake websites designed to trick you into revealing your banking details. Financial losses resulting from bank fraud or scams are typically not covered by the Federal Deposit Insurance Corporation (FDIC), which means the money lost is highly unlikely to be recovered.

Recognizing Bank Fraud

Bank fraud can be difficult to detect, but an early bank fraud alert can help prevent major long-term damage. Here are some potential warning signs that you should always be on the lookout for:

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    Account Changes

    Unauthorized changes to your account details, such as addresses or contact information are a sign of potential fraud. Banks usually send emails when this information is changed.

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    Unfamiliar Transactions

    Transactions that you don’t recognize on your bank statements should raise suspicion.

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    Declined Transactions

    A declined transaction from an account you know should have sufficient funds should be an immediate trigger to call your bank.

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    Missing Funds

    Sudden decreases in your account balance could mean fraudulent activity.

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    Unusual Account Activity

    Alerts about login attempts or account activity from unfamiliar devices or locations should be reported to your bank.

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    Unsolicited Bank Communications

    Be wary of unexpected emails or calls asking for personal information. Banks typically never request such details unsolicited.

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    Credit Report Changes

    Unexpected changes in your credit report, like new accounts or changes in credit utilization, could signal fraud.

Different Types of Bank Fraud and How to Deal with Them

While many banks have protocols to help account holders in the event of suspicious activity, you can take proactive steps to recognize the signs of bank fraud before they become major issues. Below are some common types of bank fraud you might encounter and ways to handle them.

Bank Scam: Phishing

Phishing involves fraudsters sending emails or messages that appear to be from legitimate banks to steal your personal information. They often direct you to fake websites that look like your bank’s official site.

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HOW TO DEAL WITH PHISHING
  • Always check the sender’s email address or phone number.
  • Don’t click on links in unsolicited emails or messages.
  • Report and forward suspicious emails to your bank’s fraud department.

Bank Scam: Automatic Debit Scams

Automatic debit scams are when fraudsters access your checking account details, including your bank’s routing number and your account number. The fraudster might contact you via email, text or phone to gather this information and then set up automatic transfers from your account to theirs.

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HOW TO DEAL WITH AUTOMATIC DEBIT SCAMS
  • Regularly check your bank statements for any unauthorized transactions.
  • Never disclose or verify your account routing number to anyone who contacts you.
  • Call your bank’s official number to verify any requests.

Bank Scam: Overpayment and Fake Checks

In an overpayment scam, a buyer sends you a counterfeit check for the excess amount. After you send the funds you’ll realize their check was fraudulent. A similar scam is the check-cashing or fake check scam. With this scam, someone provides you with a personal or cashier’s check to deposit and instructs you to transfer some of the funds to a third party. Later, you’ll discover that their initial check was fraudulent.

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HOW TO DEAL WITH OVERPAYMENT AND FAKE CHECK SCAMS
  • Don’t accept checks for unexpected amounts.
  • Don’t refund excess money.
  • Don’t send funds to a third party you don’t know.

Bank Scam: IRS and Tax Scams

With IRS and tax scams, fraudsters often contact you by text, phone or email related to the IRS, taxes or unemployment benefits. The IRS doesn’t initiate contact through email, text or social media platforms to ask for personal or financial details.

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HOW TO DEAL WITH IRS AND TAX SCAMS
  • If contacted by someone claiming to be from the IRS, verify their identity by calling the IRS directly.
  • Never share personal or financial information unless you’re certain they are who they claim to be.
  • Be wary of any unexpected contact or requests for immediate payment.

How to Protect Your Bank Account from Fraud

You can improve your account’s security and avoid bank fraud with these measures:

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Enable account alerts

Set up notifications for any account activity to catch unauthorized transactions quickly.

2
Use strong passwords

Create unique and complex passwords for your banking accounts.

3
Keep your devices updated

Staying updated minimizes a device’s exposure to digital viruses by addressing and patching system weaknesses.

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Actively monitor your bank account

Frequently check your bank statements and transaction history.

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Avoid public wi-fi

Try to avoid accessing your bank accounts over unsecured public networks to reduce your risk of being hacked.

FAQ: Bank Fraud

Below are some common questions and answers to help you understand how to avoid bank fraud.

How can I dispute unauthorized transactions on my account?
Are there any government programs to help victims of bank fraud?
What should I do if I receive a suspicious email claiming to be from my bank?
How do fraudsters typically gain access to personal banking information?
Can fraudsters use stolen bank details to take out loans in my name?
How quickly should I expect my bank to respond to a fraud report?
What should I do if a fraudulent transaction negatively impacts my credit score?

About Alvin Yam, CFP

Alvin Yam, CFP headshot

Alvin Yam is a certified financial planner with over 15 years of experience working with individuals and corporations. He is an expert in wealth management and personal banking. Alvin is also the Founder and Managing Partner at Paraiba Wealth Management, an independent registered investment advisor.

Prior to founding Paraiba, Alvin spent five years as a Director at HSBC overseeing retail and wealth products, and was also a Financial Consultant at Charles Schwab, advising clients on investments, retirement planning and banking products.

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