FCNR Deposits Explained: The NRI Fixed Deposit That Carries No Currency Risk
Written by
Kashish Manjani
- Blog
- Financial Planning
If you’re an NRI, you’ve probably heard this from a banker recently: “Put your dollars in an
FCNR deposit. The rates have never been this good.”
This time, they’re not exaggerating. In June 2026, the RBI announced that the hedging cost
on fresh 3–5 year FCNR deposits — a roughly 3% annual drag that banks normally bear —
will be absorbed by the government until 30 September 2026. Within days, banks raised
FCNR rates sharply. On a $10,000 five-year deposit, that can mean over $1,200 in extra
interest.
But before you move your savings, it’s worth understanding what an FCNR deposit actually
is, what makes it different from an NRE fixed deposit, and where the catches are.
Let’s break it down.
What is an FCNR(B) deposit?
FCNR stands for Foreign Currency Non-Resident. The “(B)” simply means “Bank” — it’s the
version of the scheme that has existed since 1993, where the bank (not the government)
bears the currency risk. An older version, FCNR(A), was discontinued long ago, so any
FCNR deposit you open today is an FCNR(B) deposit.
In plain terms: it’s a fixed deposit with an Indian bank, held in a foreign currency.
You deposit US dollars, British pounds, euros, or another permitted currency. The deposit
stays in that currency for its entire tenure. You earn interest in that currency. At maturity, you
get your money back in that currency.
That last part is the whole point. If you deposit $100,000, you will get back $100,000 plus
interest — regardless of what the rupee does in between.
Who can open one?
Only NRIs and OCIs (Overseas Citizens of India), as defined under FEMA. Resident Indians
cannot open FCNR accounts.
Key features at a glance
• Currency: Held in freely convertible foreign currencies — typically USD, GBP, EUR,
JPY, AUD, and CAD, depending on the bank
• Tenure: Minimum 1 year, maximum 5 years
• Type: Term deposit only — there is no FCNR savings account
• Repatriation: Both principal and interest are fully and freely repatriable • Joint holding: Allowed with another NRI, or with a resident relative on a “former or
survivor” basis — meaning the resident relative can operate the account only as the
NRI’s mandate holder during the NRI’s lifetime, and takes over fully only as survivor
• Renewal: Most banks offer auto-renewal at maturity, at the rate prevailing then
• Early withdrawal: Banks generally pay no interest if you withdraw before completing
1 year; after 1 year, interest is paid for the period the deposit ran, subject to the
bank’s premature withdrawal penalty
How FCNR is different from an NRE fixed deposit
| Feature | NRE Fixed Deposit | FCNR(B) Deposit |
|---|---|---|
| Currency held | Indian rupees | Foreign currency (USD, GBP, etc.) |
| Currency risk | You bear it | The bank bears it |
| Interest rates | Higher (rupee rates) | Lower (linked to global rates) |
| Tax on interest in India | Tax-free for NRIs | Tax-free for NRIs |
| Repatriation | Fully repatriable | Fully repatriable |
| Tenure | Typically 1–10 years | 1–5 years |
How is FCNR interest taxed?
This is the part that surprises many NRIs, pleasantly.
In India: Interest earned on FCNR deposits is exempt from Indian income tax, as long as
you qualify as a non-resident or a Resident but Not Ordinarily Resident (RNOR) under the
Income Tax Act. No TDS is deducted.
In your country of residence: This is the catch. If you live in the US, the IRS taxes your
global income — including FCNR interest. The same logic applies in Canada, the UK, and
most developed countries. NRIs in the UAE and other zero-tax Gulf countries genuinely earn
this interest tax-free at both ends.
A note for returning NRIs: FCNR deposits can be held until maturity even after you return
to India. The interest typically remains tax-exempt while you hold RNOR status — which can
last two to three financial years after return, depending on your travel history. This makes
FCNR a useful planning tool for those moving back. The exact treatment depends on your
residential status each year, so verify it before assuming the exemption applies.
Why is everyone talking about FCNR in June 2026?
Here’s the recent development that triggered this entire conversation — and the reason this post exists.
The hedging cost problem. When you deposit dollars in an FCNR account, the bank
converts them to rupees to lend in India. To protect itself against currency movements, the
bank buys a hedge — and that hedge costs roughly 3% a year. This cost has always quietly
eaten into the interest rate banks could offer you.
What changed. In the June 2026 monetary policy, the RBI announced that for fresh
FCNR(B) deposits of 3 to 5 year tenures opened until 30 September 2026, this entire
hedging cost will be borne by the government — not the banks. With that 3% drag gone,
banks could immediately pass the benefit on to depositors.
The result. Within days, banks raised their peak USD FCNR rates sharply.
Latest FCNR(B) interest rates — bank-wise (June 2026)
| Bank | Earlier Peak Rate | Revised Peak Rate | Note |
|---|---|---|---|
| AU Small Finance Bank | 5.15% | 7.10% | 3–4 year tenure |
| Karur Vysya Bank | 2.63% | 7.00% | Effective 10 June |
| State Bank of India | 3.35% | 6.00% | “SBI Advantage FCNR(B)”, 5 years, deposits above $1 million |
| HDFC Bank | 3.65% | 6.00% | 3–5 years |
| Axis Bank | — | 6.00% | Matched peers on 11 June |
| Central Bank of India | — | 6.00% | 3–5 years |
What this means in dollars
| Particular | At 4.5% (Earlier) | At 6.5% (Now) |
|---|---|---|
| Principal | $10,000 | $10,000 |
| Total Interest Over 5 Years | ~$2,492 | ~$3,769 |
| Maturity Amount | ~$12,492 | ~$13,769 |
| Extra Earned | — | ~$1,277 |
How to open an FCNR account
The process is straightforward, and most banks now allow it fully online:
1. Choose the bank, currency, and tenure. Rates differ across banks and across
currencies at the same bank, so compare for your specific combination.
2. Submit the application online or at a branch (some banks also let you convert funds
directly from an existing NRE account).
3. Provide the documents. Typically:
◦ Valid passport copy
◦ Proof of NRI status (visa, work permit, or residence permit) or OCI card
◦ PAN card (or Form 60)
◦ Overseas address proof
◦ Recent photograph
4. Fund the deposit from overseas remittance, an NRE account, or another FCNR
account.
There is no RBI-mandated deposit limit, though individual banks set their own minimums —
often around USD 1,000 or its equivalent.
Common mistakes NRIs make with FCNR
Comparing FCNR rates directly with NRE FD rates. They're in different
currencies. Adjust for expected rupee depreciation before concluding NRE “pays
more.”
• Ignoring home-country tax. A US- or Canada-based NRI must report this interest.
“Tax-free in India” is not the same as tax-free.
• Breaking the deposit early. Withdraw before 1 year and you typically earn nothing.
• Forgetting to convert accounts after returning to India. Once you become a
resident under FEMA, FCNR deposits can run to maturity, but fresh ones can't be
opened, and accounts need re-designation (typically to an RFC account at maturity).
• Putting all savings into one product because rates are attractive. A good rate is
a reason to consider an allocation, not to abandon diversification.
Practical steps if you're considering FCNR
1. Check your residential status under FEMA — only NRIs/OCIs are eligible.
2. Decide the currency. If your future expenses are in dollars (or you’re unsure where
you’ll retire), holding USD makes sense. If you’re certain you’ll return to India, the
NRE-vs-FCNR question deserves more thought.
3. Compare rates across 3–4 banks for the same currency and tenure — the spread
between banks can be significant right now.
4. Match the tenure to your goal. Don’t lock in 5 years of money you may need in 18
months.
5. Understand your home-country tax obligation before, not after, investing.
6. Keep documentation — deposit advice, interest certificates — for both Indian and
foreign tax filings.
Summary
An FCNR(B) deposit is a fixed deposit with an Indian bank held in foreign currency, available
only to NRIs and OCIs. Its core appeal is simple: tax-free interest in India, full repatriability,
and zero rupee risk — the bank carries the currency exposure, not you. In June 2026, the
government’s decision to absorb banks’ hedging costs pushed USD FCNR rates to 6–7% for
a limited window ending 30 September 2026 — worth roughly $1,277 in extra interest on a
$10,000 five-year deposit. It’s a genuinely useful product, but the right answer still depends
on your currency needs, your tax residence, and your plans for returning to India — not on
the headline rate alone.
Want clarity on how FCNR fits into your overall plan as an NRI? Aikeyam helps busy
professionals make smarter, evidence-based money decisions.
Written by
Kashish Manjani
Kashish blends strategic thinking with timeless financial principles — helping clients grow, protect, and align their wealth with their values. Kashish blends strategic thinking with timeless financial principles — helping clients grow, protect, and align their wealth with their values.
Featured in The Economic Times | Host of Money Talks with Kashish on YouTube.
FAQs
Frequently Asked questions
Is FCNR interest taxable in India?
No. FCNR interest is exempt from Indian income tax for NRIs, and the exemption generally
continues while you hold RNOR status after returning to India.
Can I open an FCNR account as a resident Indian?
No. FCNR accounts are available only to NRIs and OCIs under FEMA.
What happens to my FCNR deposit if I return to India?
You can hold it until maturity. At maturity, it is typically converted to a Resident Foreign
Currency (RFC) account or a resident rupee account.
Is FCNR better than an NRE fixed deposit?
Neither is universally better. NRE FDs offer higher rupee rates but expose you to rupee
depreciation. FCNR offers lower rates with zero currency risk. The right choice depends on
which currency your future goals are in.
Can I open an FCNR account jointly with a resident Indian?
Yes, but only with a resident relative, and only on a “former or survivor” basis. The resident
relative operates the account as your mandate holder during your lifetime.
What is the minimum tenure for an FCNR deposit?
One year. Withdrawals before one year typically earn no interest. The maximum tenure is five years.