What you should know about ads that offer an iPhone for £30

IT'S A good rule of thumb that if an offer online seems too good to be true, it probably is. Bear that in mind when you're next offered an iPhone for £30.

An iPhone for a few pounds sounds too good to be true

There is a rash of advertisements on web pages at the moment for electronics and white goods at prices which seem on the surface to be unmissable, and most are put there by the operators of so-called penny auctions.

Differing from “traditional” auction sites like Ebay, where bids are free and you pay only if you win, these sites usually charge a non-refundable fee for each bid you make. The item for which you are bidding may indeed go for a song, but only to one person; everyone else who bid and lost is out of pocket.

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Despite their name, you can’t buy anything on a penny auction for a penny. Instead, you must buy blocks of credits, costing between £30 and £350, and working out at between 10p and 12.5p each. You use up to six credits each time you bid - so if you have ten punts on an item, you’re down at least six quid if you don’t win.

The bidding itself is confusing - nothing like Ebay, let alone your local sale room. Some penny auction sites insist on unique bids - which means you must guess an amount different to any other bidder. If someone else has bid an identical amount, both bids are cancelled and bang goes your credit.

Using such a formula, it’s easy to see how penny sites like Madbid, Bid Budgie and Fastbidding make their money: they can cover their costs many times over from the cash they take in from failed bidders - to whom the whole thing is said to offer the same adrenaline rush as online betting.

Have the authorities cottoned on to this? The Office of Fair Trading (itself now replaced by other quangos) advised consumers to watch out for “misleading or fraudulent sites”, without specifying which those might be, and pointed out that penny auctions can be extremely competitive. Games can be open simultaneously to hundreds of players in different countries, and there’s a high chance of being pipped at the post after you’ve spent a bundle on multiple bids.

The OFT also pointed out that automated bulk bidding - which some penny sites openly encourage - can prolong the auction and push up costs quickly.

In the event that you win an item, you may not be able to return it if you’re dissatisfied, even though penny auctions are technically covered by the Sale of Goods Act.

The obvious advice, then, is to always carry a ten foot barge pole when in the vicinity of one of these auctions - but this is easier said than done because the advertising doesn’t always make its purpose clear until it’s too late. The golden rule is, never sign up for anything online unless it’s something you actively went looking for.