10 common types of bank fraud and how to avoid them

Andrew Showstead

January 16, 2024

  • # Fraud Prevention
  • # Identity Protection
  • # Payment Protection

You likely set up a password and log into your bank account without thinking twice. But if your login credentials end up in the wrong hands, you could become a victim of bank fraud.

This form of financial crime — which includes card and check fraud, wire fraud, and even money laundering — can have huge impacts on you as an individual. If you don’t catch it early, fraudsters could steal both your cash and your identity.

Cyber criminals are always coming up with new strategies, but with the right knowledge and security measures in place, you can keep your banking information safe. Here’s a guide to types of bank fraud and how to avoid them. 

What is bank fraud?

Bank fraud is any form of financial fraud that involves banks and their clients. It includes a range of deceptive practices where the fraudsters’ ultimate goal is to steal money, often by impersonating you or finding other ways to access your account. Most governing bodies consider it to be a white-collar crime because it involves nefarious scheming rather than flat-out stealing.

Because the definition of bank fraud is so wide, it includes everything from card fraud, which might have a quick fix, to prime bank investment scams, which can have wide-reaching consequences. But no matter how small or large the effects may seem, any kind of bank fraud has the potential to derail your financial standing — and the best way to prevent it is to know what to look for. 

A closer look at the top 10 bank fraud tactics 

From sophisticated online banking schemes to traditional check scams, fraudsters have dozens of ways to hack your accounts or access your money. Understanding common bank scams is the first step to building safer practices. Here are 10 to keep an eye out for.

1. Account takeover fraud

Description: Account takeover (ATO) fraud happens when fraudsters steal your login information and gain control of your bank account. This could result from data breaches, social engineering, or phishing attacks. Once they gain access, attackers can change your password and transfer your money to them.

Actions: The best way to avoid ATO fraud is to put extra layers of security on your bank accounts, like biometric password protection. But if you notice suspicious activity — like not being able to log in to your account — immediately contact your bank to report the unauthorized access. Change all online banking passwords and security questions, and monitor your accounts closely for any further unusual activity. 

2. New account fraud

Description: Fraudsters can steal your identity, or even make one up, and open up a fraudulent account. From there, they might make unauthorized purchases or open lines of credit they never pay back. If they’re using your identity, this can severely affect your credit score. 

Actions: If you spot a significant drop in your credit score or receive communications that you don’t recognize, report it to the bank or financial institution. It’s also a good idea to file a report with the Federal Trade Commission (FTC) and consider a fraud alert or credit freeze on your credit reports.

3. Money laundering

Description: Money laundering happens when fraudsters make money illegally and try to hide its origins. The stages include placement (introducing illicit funds into the financial system), layering (concealing the source through complex transactions), and integration (making the funds seem legitimate).

Actions: As an individual, money laundering likely won’t affect your bank account or transactions. But you can still keep an eye out for suspicious transactions or people. Contact law enforcement if you suspect someone’s involved in a money laundering scheme.

4. Money mules

Description: Money mules are people who move illicit funds, either transferring them between accounts or withdrawing them in cash. This process adds a layer of separation between the crime and the criminals, making fraud harder to track. Money mules may know what’s going on, or fraudsters could trick them into moving funds without knowing the true source — which means you could become a money mule unwittingly.

Actions: If you suspect someone is using you as a money mule, immediately cease all transactions. Don’t transfer large amounts of cash unless you’re certain of the reasons why, and never do so for strangers. If something does seem suspicious, report the activity to your bank and law enforcement authorities.

5. Payment fraud

Description: Payment fraud includes any illegal transaction where a perpetrator steals money from a victim's account. It’s a broad category, and it could happen for a number of reasons, including unauthorized online payments, debit card misuse, or wire transfer fraud. 

Actions: Check your bank statements regularly to make sure there are no unauthorized transactions and never give your payment information to a source you don’t trust. If you see something odd, notify your bank or credit card provider.

6. Automated clearing house fraud

Description: Automated clearing house (ACH) fraud happens when criminals manipulate the ACH system — an electronic transfer service — to divert or steal funds. Cyber criminals can execute this type of fraud with minimal information, like account and routing numbers, which is why it’s so important to protect any piece of data.

Actions: Contact your bank as soon as you notice unauthorized or suspicious ACH transactions. You might also need to close the affected account and open a new one for security purposes.

7. Check fraud

Description: Check scams can take many forms, including forging, altering, or stealing checks. Techniques like check kiting, which happens when someone writes a check for more than they have, are also common.

Actions: If someone steaks a check or gives you a fake one, report the fraud to your bank immediately. Monitor your account for further fraudulent activities, and never accept a check from someone you don’t trust.

8. Card fraud

Description: This is any unauthorized use of credit or debit cards to make transactions, including lost or stolen cards, skimming, and card-not-present fraud. If someone steals your card and you don’t catch it fast, a fraudster could spend thousands of dollars of your money.

Actions: Report a lost card to the issuer immediately, even if you aren’t sure if it’s stolen. Take the time to review your card statements and report any transactions that seem off, and if necessary, request a new card with a different number.

9. Peer-to-peer payment fraud

Description: This type of fraud happens on peer-to-peer (P2P) payment platforms like Venmo, PayPal, and Zelle. Fraudsters use stolen account information or deceptive practices to steal money.

Actions: If you spot suspicious transactions or worry that you’ve sent money to a criminal, contact the P2P service provider to report it. If your account links to a credit card or bank, alert those institutions. 

10. Wire transfer fraud

Description: Wire transfer fraud happens when someone redirects a wire transfer or asks for money for suspicious reasons. It often starts through email scams, phishing, or social engineering. Fraudsters will reach out and lie to you about why they need money, sometimes posing as someone you trust.

Actions: You should never transfer money to someone you don’t know, but if you think you’re a victim of wire transfer fraud, contact your bank as soon as possible. They may be able to stop the transfer before it goes through. 

5 ways to avoid bank fraud

When it comes to digital security, the stakes are high. Experienced fraudsters could steal all of your money in seconds — but the good news is all fraud is preventable. Here's an in-depth look at how to protect yourself:

  1. Stay up-to-date: Learning about typical fraud schemes, like phishing scams and identity theft, will help you know what to spot. Take the time every few months to read up on the news and contact your bank about any recent changes to how fraudsters operate. Most institutions have educational materials on their websites.

  2. Monitor your accounts: Continuously monitoring your transaction patterns helps detect anomalies early. Check your bank statements every month — or even more often — to make sure nothing suspicious is going on.

  3. Practice vigilance: Before you agree to move money or transfer it to a stranger, take a second to think about the situation. It’s better to be vigilant and say “No” than get caught in a scam.

  4. Allow notifications: Make sure you allow texts, emails, and push notifications from your bank so if something’s suspicious, you’ll know right away. You can usually adjust your settings in your bank’s app or website. 

  5. Use a security super app: IronVest’s cutting-edge technologies can lock down your bank accounts and prevent fraudulent transactions. Its digital security systems use biometric authentication methods, such as facial recognition, so only you access your accounts.

Who’s responsible for bank fraud?

Keeping your bank accounts safe is a two-way street. Both you and your institution play pivotal roles in preventing and detecting fraud, so when it comes to responsibility when things go wrong, there’s never a single scapegoat.

Banks need to have robust security measures, including advanced encryption and fraud detection systems, to make sure you’re the only one accessing your information. They should also train staff to recognize and respond to fraudulent activities quickly. It’s the bank’s job to keep your information safe, so if you don’t feel like they’re upholding the end of the deal, you should change institutions.

On the other hand, you have to be vigilant when it comes to accessing and sharing your personal information. It’s not the bank’s fault if you tell someone your password or wire money to a complete stranger. Make sure you always safeguard your personal information, use strong passwords, and regularly monitor your accounts for unusual activities. If something does go wrong, you can work with your bank to prevent it.

Secure your finances with IronVest

It’s true that you and your bank both play a role in preventing online banking fraud. But there are extra steps you can take to stay safe online — and that’s where IronVest comes in.  

Discover IronVest’s security and privacy-focused super app to enhance your digital safety. Its unique approach includes advanced encryption and innovative biometric fraud prevention technology, like facial recognition and fingerprint scanning. And when you want to use your bank card online, you can swap it with a single-use virtual card, protecting your information with ease. Bolster your financial security today.

Get the app

Protect your accounts, data, and payments.