How To Assess FCNR Interest Rates

Fixed Deposits (FDs) are one of the safest investment options, not only for residents Indians but for non-resident Indians (NRIs). One of the popular FDs among NRIs is the Foreign Currency Non-Resident Bank (FCNR-B) account where people can keep their money in their desired foreign currencies that are freely convertible. 

The major attractions for FCNRs are the higher interest rate when compared to their country of residence, the tax exemption on the interest earned, and the principal and interest amount being fully repatriable. Also, there is no risk of exchange rate fluctuations as the currency need not be converted to the Indian rupee. 

What Is An FCNR Account?

Foreign Currency Non-Resident or FCNR (B) account is a fixed deposit account designed to provide NRIs the option to save their foreign earnings in the foreign currency of their choice in Indian banks and earn good returns at the same time. These are not Savings accounts and have a fixed tenure (1-5 years).

FCNR deposits are allowed in the following currencies.

• USD-US Dollars
• GBP- Great Britain Pound
• EUR-Euro
• JYP-Japanese Yen
• AUD-Australian Dollars
• CAD-Canadian Dollars
• CHF-Swiss Franc
• SGD-Singapore Dollar
• HKD-Hong Kong Dollars

The facility to hold an FCNR account in the above-mentioned currencies can vary from one bank to another. Please check with your bank to find out the currencies available. 

Who Can Open FCNR Account?

NRIs and PIOs (Persons of Indian Origin/ Overseas Indians) are eligible to open an FCNR account in any major Indian bank.

For individuals/entities of Pakistan and Bangladesh, the Reserve Bank of India will have to give the approval to open an FCNR account.

Features Of An FCNR Account:

• The deposit is in foreign currency (US dollars, pounds sterling, euro, yen, etc.)
• The deposits are protected against forex rate fluctuations
• Interest rates: Rates vary with banks and are very competitive 
• The interest earned is tax-free in India (If you are a US resident, you may have to pay tax on your global income) 
• The principal and the interest earned is fully repatriable to the country of residence 
• The tenure is 1 to 5 years 
• The interest rates are compounded on a half-yearly basis and it is paid only after the completion of 1 year
• Premature withdrawal is allowed. Some banks may charge a penalty for it
• Open joint FCNR accounts with two or more NRIs
• Apply for a loan against the deposit in the FCNR account. The loan amount is in INR and can be paid back from the maturity proceeds
• Add an NRI nominee for your account 

Do keep in mind that in case of a financial crisis, there might come a situation where banks may not be able to repatriate the funds. 

Interest Rates On FCNR Accounts

The interest rates for FCNR deposits are not the same for every bank and it also varies with different currencies. It can be low as 0.15% for Euro and high as 1.03% for USD for a 5-year tenure.  

Here is a table showing the different rates offered by some major Indian banks for US Dollar FCNR deposits. The rates can vary with different banks and the tenure of the deposit. Take into account these factors when choosing the right fit for your circumstances.

Is It Better To Keep US Dollars In A US Bank Account Or Deposit It In An FCNR Account?

The interest rates on FCNR deposits are higher than FDs rates in US bank account. For instance, as of today, SBI offers a 1.03% interest rate on FCNR deposits (US Dollar) for a tenure of 5 years in comparison to Bank of America's 0.03% interest rate for 34 months Fixed term CD Deposit.

Also, since there is no risk of exchange rate fluctuations, your money in the FCNR account (US dollars) is protected from depreciation in the rupee against the US dollar. 

If you were to convert it into a rupee (in the case of NRE-Non-Resident External or NRO-Non-Resident Ordinary fixed deposits account), it would have lost in value. Also, the higher interest rate on such deposits won't make a huge difference as it may only compensate for the higher inflation in INR. 

Read more on NRI Bank accounts. 

It is smart to deposit your US dollars in an FCNR account because you get higher risk-free returns.

In case you are wondering which term deposits are the best pick out of the three-term deposits, it would depend on your risk appetite and financial goals. 

NRE/NRO term deposits are best if you plan to keep your investments in India for the long term. But the value of the rupee is subject to the volatile relationship between the rupee and the dollar. 

If you want to protect your money from currency risk and plan to repatriate the maturity proceeds, the FCNR account is the best option.

Here is a comparison of the interest rates between the term deposits of some Indian banks.

How Can You Deposit Your Funds To Your FCNR (B) Account?

You can either transfer from your NRE account or another FCNR account. You can also do a wire transfer from your overseas bank account or inward remittance into your FCNR account. 

Where Can You Use Your FCNR (B) Deposit?

You can transfer your funds overseas or withdraw them for making investments in India or local disbursements or transfer them to your NRE account or another FCNR (B) accounts.  

What Documents Do You Need To Open An FCNR (B) Account?

• A valid passport 
• Proof of  residency PIO/OCI (Overseas Citizen of India) status
• Proof of overseas address 
• Copy of Pan Card or Form 60
• Indian address proof (optional)
• Passport-size colored photographs 

How Easy Is It To Open An FCNR Account In India?

The process is straightforward and easy. You can open an FCNR account online through the bank's internet banking portal by providing the necessary documents. Make sure you open an NRE or NRO account before you open an FCNR (B) account. 

What To Do If There Is A Change In Residential Status?

FCNR(B) deposits are allowed to continue till maturity at the contracted rate of interest if so desired by the account holder when there is a change in residential status. 

On maturity, FCNR (B) deposits shall be converted into resident rupee deposit accounts (RFC account) by authorized dealers if the account holder is eligible to open one.

What Are The Pros And Cons Of FCNR Accounts? 

Pros Of FCNR Account Holders 

FCNR accounts are protected against foreign exchange risks since they are maintained in a foreign currency 

FCNR accounts are denominated in several major currencies such as GBP, USD, AUD, etc

Interest earned on FCNR deposits in India is exempt from Income tax

FCNR has a provision for joint account ownerships

In FCNR accounts, both principal and interest are freely repatriable

The lock-in period of FCNR accounts is not more than 3 years

Interest on FCNR term deposits are payable after the end of the first year 

FCNR account holders benefit from the compounded interest which is calculated on a half-yearly basis after the first year 

FCNR account holders are eligible for rupee loans for any investment in India that can be repaid from the maturity proceeds

Cons Of FCNR Account Holders

FCNR deposits are term deposits so no interest is payable if they are withdrawn in less than one year 

When transferring your deposit, Banks may charge swapping charges 

Premature withdrawals from FCNR accounts will attract penalties

While the interest earned on FCNR deposits is tax-free, it may be taxable depending on the country of residence of NRIs 

The ceiling on a credit guarantee in India is around 1600 USD. In case the bank files for bankruptcy or during a financial crisis, the security of your deposit is at risk

Conclusion  

The basic investment mantra is that the higher the risk, the higher the potential returns, which is also known as the risk-return tradeoff. FCNR accounts are an excellent investment option for NRIs who are looking to keep their foreign earnings in India and earn steady returns at low risk.  

There are however many investment options for NRIs such as equities, bonds, etc. Depending on your appetite for risk, and therules of investment for NRIs, you should consider a portfolio that aligns with your long-term financial goals.

If you are sure of FCNR deposits, but unsure of which bank to invest your hard-earned money abroad, compare the interest rates for FCNR accounts offered by banks, and the financial stability of those banks.