NRIs have many investment options in India but the FCNR Deposit account is one of the most ignored ones… You can read all about the FCNR account for NRI & its comparison with NRE FD – also check is it a good investment.
What is the FCNR account for NRI?
FCNR stands for Foreign Currency Non-Resident account. It can be opened by NRIs and PIOs. It is similar to a Fixed Deposit (Term Deposit accounts ) but it is a Fixed Deposit wherein money can be deposited in foreign currency and interest can be earned on the same.
The FCNR Deposit Account scheme was introduced with effect from May 15, 1993, superseding FCNR (A) where exchange rate dangers were borne by RBI impacting its balance sheet. FCNR account for NRI can be opened with all the Indian banks or its division to invest in India by depositing currencies that are designated, on which you can earn interest. These balances can thus be maintained by Non-resident People of Indian Nationality or Indian origin.
What are the key features of the FCNR Deposit Account?
The key features of FCNR account –
- It is a fixed deposit (Term deposit accounts) that can be opened by non-resident Indians.
- Usually, the tenure of an FCNR ranges from 1 year to 5 years.
- Can be opened as a joint with another NRI
- The FCNR Deposit interest rate is determined by the bank based on the ceiling determined by RBI.
- The NRI can avail of the nomination facility for this account. The nominee can be an NRI or a resident Indian.
- The FCNR can be continued till its maturity date if the status of the account holder changes from NRI to Resident Indian.
Must Read – Can NRI open joint account with resident indian
Why should I have a dollar deposit in India?
- An FCNR deposit is a useful account to invest money in as a regular interest rate is paid.
- There is no currency fluctuation risk as the amount invested and the amount paid back in terms of principal and interest is in the same designated foreign currency.
- Interest earned on FCNR deposits in India is exempt from income tax.
- If you are a Non- Residents Indian, you can invest your earnings which might be in foreign currency in an FCNR without any exchange rate fees, and also get back your investment along with interest without any exchange rate fees.
Which currencies are allowed in the FCNR account?
The account can be opened by depositing money in foreign currency. Major currencies such as the Australian Dollar, Canadian Dollar, Japanese Yen, Euro, UK Pound, and US Dollar are allowed. The currency depends on the banks with which the account is being opened.
Any repatriation restrictions on Foreign Currency Non-Resident accounts?
The amount in the FCNR is freely repatriable. The amount can also be transferred to the nominee’s account without any charges or taxes in case of the death of the primary NRI account holder.
FCNR Fixed Deposit Interest Rate
Here are rates India on FCNR of some banks for NRI USD account in India (for comparison I have also shared 2021 rates)
|Bank||Currency||Tenure||July 2021||Jan 2022|
|ICICI Bank||USD||>= 12 months < 24 months||0.50%||0.63%|
|ICICI Bank||GBP||>= 12 months < 24 months||0.02%||0.50%|
|HDFC Bank||USD||> 12 months <18 months||0.01%||0.01%|
|HDFC Bank||GBP||> 12 months <18 months||0.01%||N/A|
|SBI||USD||>12 months< 24 months||0.70%||1.03%|
|SBI||GBP||>12 months< 24 months||0.67%||1.35%|
Read – What Is RFC Account?
What are the tax implications of income earned
- Interest income earned is tax-free in India.
- The amount that is transferred to the Resident Foreign Currency account or the Resident Rupee account after maturity is not taxable as well.
Are there any drawbacks
- It cannot be opened as a joint account with a resident Indian.
- Premature withdrawal is subject to penalty. It depends on the bank where the account is.
- The interest rate is usually lower than that of NRE/NRO deposit accounts.
How do I open an account?
You can contact the bank and you require documentation such as Passport, Visa, KYC, FACTA declaration, and identity proof and address proof for current residence, income documents may be required.
Loan Against FCNR Deposit
Usually, the FCNR holder can get a loan against this account subject to certain conditions. The loan can be taken for personal or business use.
It’s possible to use your own deposits and get funds from both Indian and overseas currencies.
Where do you avail of loans from the FCNR deposit account?
Ideally, it is possible to avail of a loan from your FCNR deposit anywhere on the planet. You’ll need to check on those banks’ policies prior to applying.
NRE Vs FCNR Account
NRIs can open bank accounts in Indian banks. These can be Non-Resident Ordinary Rupee (NRO) accounts, Non-Resident Rupee (NRE) accounts, and Foreign Currency Non-Repatriable account accounts.
An NRI can have fixed deposits in an FCNR or in an NRE account. Let us look at the key similarities and differences between the two –
Key Features FCNR account Vs NRE Fixed Deposit
An NRE FD is a fixed deposit account wherein the NRI makes deposits from overseas in an account in an Indian bank. The amount will be converted into Indian rupees.
This account is a fixed deposit account wherein the NRI invests in a foreign currency. Not all currencies are accepted Some of the common ones accepted are the Australian Dollar, British Pound, Canadian Dollar, Euro, Japanese Yen, and US Dollar, etc.
In the case of an NRE FD, principal and interest are credited to the NRE savings account. The amount can be freely repatriated.
At the time of maturity, principal and interest can be freely repatriated.
Here is a comparison of the Interest Rates offered by different banks for FDs with a tenure of 1 year.
|Banks||Interest Rate on NRE FD (1 Yr)||FCNR Deposit Interest Rates|
SBI – Interest in FCNR for Amount <USD 300000, Interest in NRE FD for amount < Rs. 2,00,00,000
HDFC – Interest in NRE FD for amount < Rs. 5,00,00,000
Taxability FCNR & NRE FD
Interest earned on both NRE FD and FCNR is tax-free in India.
If the rupee depreciates further at the time of maturity and repatriation, you will lose value and money in an NRE FD.
There is not much of currency risk as you invest and withdraw in the same foreign currency
NRE FD and FCNR accounts can be opened with NRI as joint holders or an NRI and a resident Indian.
On Return to India
FCNR and NRE deposits can be closed immediately or can be allowed to run up to maturity.
They can be converted to Resident Foreign Currency Accounts after maturity till the individual has an RNOR status.
Many features are similar to both accounts. They primarily differ in currency and interest rates.
Is FCNR a good Investment?
In the long term, you will see that Foreign Currency deposits & NRE FD returns will be more or less the same because interest differential will take care of Indian Rupee depreciation. You can consider Foreign Currency Non-Resident account for diversification… it can also be considered after periods of significant appreciation of Indian Rupee in the short term.
If you have any queries related to the FCNR account for NRI – please add them in the comment section.