What is HYIP?

The acronym stands for High Yield Investment Program. The idea behind them is to create a program with many people can invest very small amounts of money and get high rates of return. Most of the programs claim to do this by using e-currencies like eGold for efficiency of payment which they then invest in high yield ventures like day trading or foreign exchange trading.

How do they work?

For the most part, they don't. They are almost all scams of a form called "Ponzi" which is named after a famous incident where a man named Ponzi first popularized the strategy. It's also known as a pyramid scam. You basically start with taking investments from people, and then as the return for the earliest investors is coming due, you use the money from the new investors to pay. You don't have to make any money because you are bringing in new money to pay the interest. As long as you can continue to bring in enough new money to pay the investors and they keep their investment in, you can keep the scam going. Then when the new investment isn't enough to cover paying out, you just stop and take the money and run.

HYIPs almost always turn out to be scams. A recent famous one was 12dailypro.com where the leader made about $50 million before the program collapsed under investigation from the federal government in the U.S. in the spring of 2006. Most of them have servers off shore in a country that doesn't have laws against Ponzi scams. But there are many that try to look like a legitimate activity like 12dailypro.com did. They made users visit 12 websites a day to qualify to get paid. So it wasn't an investment, it was more like a job that paid huge returns on capital invested. When it fell apart, only the people who got in and out before the freeze got their money back. Now the government is working to sort out getting back the investments for the rest. But likely most of it will be lost to the investors who got out early.

Why are they still so popular?

Greed primarily. People who get into these programs often know that it can't be legitimate. They know that they have to make their money and get out or be caught. They know that there is no value being added in such a program. It's just a gamble where there are winners and losers. So, just like gambling is popular, so are HYIPs.

Are there exceptions?

There may be some programs going by the moniker HYIP that really do use the money to make real investments and pay returns with the profits. But the returns won't be the 12% or higher weekly returns promised by the scams. They will be more in line with traditional investments.

Overall, it's a risky plan to get involved with any HYIP. If you look at them as a game where you put money in like gambling, you might be ok. But if you actually expect to come out ahead in the long run, you better be good at gambling.