FCNR deposit, short for Foreign Currency Non-Resident deposit, allows non-resident Indians to maintain a fixed deposit in India. FCNR account is risk-free, and interest on deposits is tax-free. These accounts offer competitive interest rates. FCNR accounts in India earn higher interest rates than those in any other country. You need to visit your bank to open an FCNR account, although you can also do it remotely. However, consider the pros and cons of opening an FCNR account before deciding. Let’s discuss and learn more about the FCNR deposit.
What is FCNR Fixed Deposit?
FCNR deposits, one of the most secure forms of investing, are a popular investment avenue for NRIs to park their money earned overseas. FCNR deposits help NRIs earn higher rates on their savings while maintaining access to their funds in the foreign currency of their choice. Many Indian banks provide the facility to open an FCNR deposit account.
Features of FCNR Fixed Deposits
Here are some of the salient features of FCNR deposits.
It is a term deposit with a minimum duration of one year and a maximum tenure of five years.
The interest you earn on your FCNR deposit accounts is exempt from taxation in India, meaning you do not have to pay tax on the money you make. The annual percentage yield, or interest rate, is fixed for the tenure of the deposit. A compound FCNR deposit interest rate is applied to the balance every six months.
Option to open an account in multiple currencies
You can deposit into your FCNR account any foreign currency that is freely convertible, as defined by the Reserve Bank of India (RBI). You can now make this deposit in six different currencies: USD, AUD, GBP, CAD, SGD, or HKD.
There is a nomination facility available for FCNR deposits. Any non-resident Indian (NRI), person of Indian origin (PIO), or Indian resident may be selected as a nominee.
Pros of FCNR Fixed Deposits
An FCNR account comes with the following benefits.
Loans against funds
The holder of an FCNR account can receive rupee loans as collateral against the money deposited in their account.
Interest and principal are freely repatriable
You can withdraw and repatriate the amount invested in FCNR accounts to the country of your residence. In other words, you can take the invested amount with interest back to your resident country without any hassle.
Repay any foreign currency loans
Risks associated with fluctuations in the currency exchange rate are hedged in FCNR accounts. One can use the income earned on maturity to repay any foreign currency loans taken out by the account holder outside India.
Cons of FCNR Fixed Deposits
However, FCNR deposits come with their share of downsides as well.
Penalties for premature withdrawals
You can open an FCNR deposit for a tenure between one year to five years. Interest will not be paid if you withdraw the deposit before the completion of one year. After one year, there are no premature penalty charges.
Swapping charges on transferring your deposit
When you move your deposit, the bank could charge you switching costs.
Loan available to account holders only
Only the account holders are eligible to get foreign currency loans secured against FCNR deposit accounts in India.
For NRIs who want to invest their money safely in India while still receiving interest on their profits from abroad, FCNR deposit accounts offer a great opportunity. Yet, non-resident individuals can also consider options such as stocks and bonds. Do your research on regulations governing NRI investments in India before investing.
Is FCNR deposit suitable for long-term savings?
One can open an FCNR deposit for a period ranging from one year to five years. NRIs interested in a term deposit scheme may find that FCNR deposits meet their needs.
Can I avail of a loan using my FCNR deposit as collateral?
Borrowing against the value of a foreign currency or rupee deposit is an option for FCNR account holders. The loan amount and loan currency are both determined by the lending bank. The borrower can utilize the loan or overdraft facility for anything except lending, agricultural, and real estate-related activities.
Can I repatriate FCNR funds to my country of residence?
In a word, yes. The principal and income generated on FCNR deposits can be transferred back to the nation of origin or domicile.
Can I make an early withdrawal from my FCNR account?
Withdrawals from FCNR accounts may be made early if necessary. Nevertheless, the FCNR interest rate is forfeited if you close the account before one year.
What are the benefits of opening an FCNR account?
No effect from exchange rate fluctuations as you hold the deposit in a foreign currency. More returns in foreign currency at a competitive FCNR deposit interest rate. Principal and interest payments may be withdrawn in their entirety after one year. Deposits in FCNR receive interest that is exempt from taxation.
Is the FCNR deposit subject to any penalties?
Withdrawals from FCNR fixed deposits after the first year of investing are not subject to premature penalty charges. You will get interest payments as long as your investment is active.
What is the difference between an FCNR deposit and an NRE deposit?
The account’s primary convenience is the ability to withdraw funds from an FCNR deposit account at maturity. It’s an effective hedge against foreign-exchange fluctuations. If, on the other hand, you know for sure that you want to keep your investment portfolio in India, it makes sense to open an NRE account.
What are the drawbacks of an FCNR deposit?
The FCNR deposit might get unpaid at maturity with a financially unstable bank. A global financial crisis might play spoilsport. You will lose interest if you withdraw the deposit before the completion of one year.
Are There Any Risks Associated with FCNR FDs?
Yes, like any investment, FCNR FDs have risks. Exchange rate fluctuations and changes in interest rates can impact returns. It’s important to consider these factors before investing.
How to Choose Between FCNR and Other Investments?
Deciding between FCNR and other investments involves considering your goals, risk tolerance, and time horizon. Research and seek advice to find what aligns best with your financial needs and comfort.
Are FCNR FD Rates Fixed for the Entire Tenure?
Yes, FCNR FD rates are fixed for the entire tenure. The interest rate you agree upon when opening the FD remains constant throughout its duration, providing predictability to your returns.
How Can I Open an FCNR Fixed Deposit?
Contact a bank offering FCNR accounts. Provide documents, choose currency/tenure, deposit foreign funds, complete forms. Receive account details. Follow RBI guidelines and bank instructions.