Non-Resident Indians (NRIs) who would like to open an account in India have several options to choose from such as NRE Fixed Deposit Account, Non-Resident Ordinary (NRO) Savings Account, and Foreign Currency Non-Resident (FCNR) Fixed Deposit Account, etc. In this article, we shall help you understand how NRIs can take advantage of FCNR deposits.
FCNR account stands for Foreign Currency Non-Residential Account. It is a term deposit account offered to NRE/NRO account holders and is similar to a regular fixed deposit. Investors in this account will be able to earn tax-free interest on their investments. The interest rates offered by an FCNR account depend on the type of currency held and the bank. It is a lucrative option for NRIs in terms of attracting foreign remittances.
As per the rules laid down by the Reserve Bank of India, customers can deposit their foreign savings in any of the following currencies:
- US Dollars – $
- Canadian Dollars – C$
- Great Britain Pound (GBP) or Pound Sterling – £
- Japanese Yen – ¥
- Euro – €
- Australian Dollars – A etc.
Note: This list is subject to changes from the RBI. It may include the likes of the Singapore dollar, Swiss Franc, Danish Krone, and Swedish Krona among others. Customers are advised to contact the respective bank about the same.
Some characteristics of the FCNR account:
- As per the current regulations of RBI, banks are allowed to accept FCNR fixed deposits for a maximum tenure of 5 years. However, unlike regular domestic time deposits, FCNR deposits are to be kept for a minimum of 1 year.
- Rules and regulations regarding premature or early withdrawal will be different depending on the banks but premature withdrawal is not permitted if the depositor has already availed a loan against the deposit.
- Interest rates on FCNR term deposits are payable after the end of the first year. Interest is compounded on a half-yearly basis subsequently.
Eligibility criteria:
- You are an NRI (Non-Resident Indian).
- You have a PIO card (Person of Indian origin) / OCI card (Overseas Citizen of India).
Also read: Market Outlook November 2022
Pros of investing in an FCNR account:
- FCNR (B) is a fixed deposit held in foreign currency hence it is protected against forex rate risks.
- FCNR deposit accounts are one of the most secure investment options available for NRIs.
- Interest earned on FCNR deposits in India is exempt from Income tax.
- The principal amount and interest earned are fully repatriable.
- It can be denominated in several major currencies.
- It can be used as collateral for rupee loans or foreign currency loans.
- Relatively high-interest rate.
Now let’s look at some cons:
- In case of a financial crisis, the bank may not be able to repatriate the funds.
- FCNR deposit is offered for term deposits only.
- There may be some fines for premature redemption in some banks (It varies).
- Some banks might not be able to pay proceeds if there are in financial turmoil.
- While the interest earned on FCNR deposits is tax-free, it may be taxable in the country of residence of the NRI.
FCNR FD rates in some major banks along with denominating currencies:
(Interest rates (percent per annum) as of December 2022)
| Currency | USD | GBP | CAD | AUD | SGD | HKD |
| >= 12 months < 24 months | 4.75 | 3.65 | 3.75 | 3.35 | 3.25 | 3.75 |
| >= 24 months < 36 months | 4.25 | 3.65 | 3.75 | 3.35 | 3.25 | 3.75 |
| >= 36 months < 48 months | 3.6 | NA | NA | NA | NA | NA |
| >= 48 months < 60 months | 3.35 | NA | NA | NA | NA | NA |
| 60 months | 3.3 | NA | NA | NA | NA | NA |
HDFC Bank:
- State Bank of India (SBI):
| Currency | USD | GBP | EURO | CAD | AUD | JPY |
| >= 12 months < 24 months | 4.25 | 3.70 | 0.50 | 3.50 | 2.60 | 0.02 |
| >= 24 months < 36 months | 3.45 | 2.35 | 0.50 | 3.00 | 2.75 | 0.05 |
| >= 36 months < 48 months | 3.70 | 2.45 | 0.50 | 3.15 | 3.00 | 0.05 |
| >= 48 months < 60 months | 3.80 | 2.45 | 0.50 | 3.20 | 3.20 | 0.05 |
| 60 months | 3.90 | 2.45 | 0.50 | 3.25 | 3.45 | 0.05 |
| Currency | USD Below 5 million |
USD 5 million & above |
GBP | EURO | AUD | CAD | JPY |
| >= 12 months < 24 months | 5.2 | 5.2 | 3.75 | 0.01 | 3.35 | 3.5 | 0.01 |
| >= 24 months < 36 months | 3.75 | 3.75 | 3.25 | 0.01 | 3.75 | 3.5 | 0.01 |
| >= 36 months < 48 months | 3.6 | 3.6 | 2.45 | 0.01 | 3.8 | 3.45 | 0.01 |
| >= 48 months < 60 months | 3.35 | 3.35 | 2.45 | 0.01 | 4 | 3.35 | 0.01 |
| 60 months | 3.3 | 3.3 | 2.45 | 0.01 | 4.05 | 3.3 | 0.01 |
| Currency | USD Below 5 million |
USD 5 million & above |
GBP | EURO | AUD | CAD | JPY |
| >= 12 months < 24 months | 5.00 | 5.00 | 4.35 | 2.55 | NA | 3.65 | 4.10 |
| >= 24 months < 36 months | 4.05 | 4.05 | 3.80 | 2.05 | NA | 3.30 | 3.05 |
| >= 36 months < 48 months | 3.60 | 3.60 | 3.55 | 1.90 | NA | 3.30 | NA |
| >= 48 months < 60 months | 3.50 | 3.50 | NA | NA | NA | NA | NA |
| 60 months | 3.10 | 3.25 | NA | NA | NA | NA | NA |
Closing thoughts:
FCNR deposit is one of the safest forms of investment for NRIs and OCIs, where they would be able to earn competitive interest along with no associated foreign currency risk. The deposit plays a significant role in terms of attracting remittances from NRIs and increased inward remittances from NRIs, leading to more forex reserves, which in turn, reduce the current account deficit of the country, which is one of the main reasons for the depreciation of the rupee. Hence the investment not only provides a safe form of investment for the individuals but also benefits the country. Individuals looking into investing in the scheme should carefully consider the risks associated with the banks through which they are investing.
Disclaimer:
This article should not be construed as investment advice, please consult your Investment Adviser before making any investment decision.
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Also read: Do you have your Retirement plan in place?
