Which would scare readers more, Sauron or John Wayne Gacy? Sauron might be more fun to read about, in an RPG sort of way, but he's not going to be knocking on my door, at 3:00 AM. Someone like Gacy just might... I've never felt dread about any antagonist in any fantasy story I've read, and I have a perfectly well developed imagination, thank you. But really all we are doing here is splitting hairs between the realms of fantasy -- where anything goes, which is fine -- and more realistic fiction in which the readers expect more realistic antagonists. It all goes back to what has been said several times, "the character is as bad as he needs to be for your story."
My point was that I can imagine many things that don't exist, put myself in such a world and such a situation, and imagine what facing such a thing would feel like. Many readers can, and that's why so many are drawn to fantasy. If you cannot do that then yes, the problem is on your end.