Monday, August 6, 2012

FCNR Fixed or Term deposits - Should NRI Invest?

Should you Invest in FCNR fixed or term deposit?
FCNR (Foreign Currency Non Resident) deposit is another way NRI can invest money in fixed deposit, this is the third option for Indians staying abroad along with more popular NRE and NRO Fixed deposit. Since deregulation of the interest rate on FCNR deposit earlier this year, In an attempt to arrest Rupee slide against USD and attract more dollars from NRI customers, FCNR deposit has become an attractive alternative for NRI.


As I mentioned in my earlier post, Good time to invest in NRE fixed deposit that interest rates and exchange rate both are in favor of NRI and its really good time to invest money on NRI fixed deposits. Now like many other NRI first confusion comes on What is this FCNR deposits, Should I invest in FCNR deposit or NRE fixed deposit and several other doubts which prevent many of NRI from investing quickly. In this article, we will look some basics of FCNR deposit and given nature of FCNR deposit we will be able to decide whether investing in FCNR deposit is a good option or not?


What is FCNR Fixed Deposit?

FCNR deposit stands for Foreign currency Non Resident deposit where an NRI invest his foreign currency like USD, AUD, GBP with an Indian bank like ICICI, SBI, HDFC or Kotak Mahindra etc. FCNR term deposits are like placing money in local deposit but you are likely to get better interest rates on FCNR term deposit than what your local foreign bank can offer. especially after deregulation of interest rates on FCNR fixed deposit and increased competition between many Indian banks like ICICI, HDFC, SBI, and Kotak Mahindra.




Features and Benefits of FCNR Fixed Deposits

Features and Benefits of FCNR fixed deposit vary from Bank to Bank but here are some of the common features:

1) Low deposit Amount
Minimum deposit amount is quite low, you can open FCNR term deposit with ICICI bank with 1000 USD or EURO. for other foreign currency also deposit amount is reasonably low.

2) Tax Benefit
Interest earned on FCNR term deposit or fixed deposit is tax-free in India. Though it may be taxable in the country you are living in the USA calculate tax on the global income of their residents.



3) Flexible tenures
Most of the banks offer FCNR term deposit in various tenures starting from 12 months to 5 years. you can choose the term which is best suited you, Also, for lower tenure you may get better interest rates but given the relatively higher interest rates available currently, it's better to invest amount for the medium period.



Who should invest in FCNR term deposit?

FCNR (Foreign currency Non-resident) term or fixed deposits are best suited for NRI who wants to keep their money in foreign currency like US dollars (USD) or Euro etc. The main benefit of FCNR term deposit is that it avoid currency risk. So if you intention to repatriate the whole amount back to USD then keep that in FCNR because if Rupee depreciates further which is not unlikely given current volatility in the currency market, It may wipe off all the interest earned in Indian rupee when you convert those into USD.




Difference between FCNR and NRE Fixed deposit

The main difference between an FCNR term deposit and NRI term deposit is that In FCNR money remains in Foreign currency like dollar while in NRE fixed deposit money remain in Indian Rupee, which means there is a currency risk involved if you want to convert Rupee back to the dollar. Another difference between FCNR and NRE fixed deposit is that mostly you get lower interest rate on FCNR deposit, similar to what foreign banks offer but you get a better interest rate on NRE fixed deposit because of participation of Indian bank and because Indian government wants the foreign currency to boost rupees' free fall.

Difference between FCNR and NRE fixed deposit



This is a unique opportunity for Indians living abroad and you should cash in this. Remember when you return back to India, your FCNR term deposit can continue to earn contracted rate of interest until maturity and after that, you can convert into RFC account, where RFC stands for Resident foreign currency account. The benefit of keeping your USD on RFC account is that you can repatriate them for good purpose e.g. to fund your son or daughter's education.




FCNR deposits for NRI - Frequently asked question Answers

Here is a list of some frequently asked questions related to FCNR (Foreign currency Non-resident) term deposits:


1) Does Interest earned on FCNR fixed or term deposit taxable in India?
Good news, You don't need to pay tax on Interest earned on FCNR fixed deposit in India.


2) What are common tenures for which NRI can open FCNR term deposit?
Similar to NRE fixed deposit, you can also open FCNR term deposit from 12 months to 5 years time frame.


3) Can I jointly open FCNR term deposit?
Yes, You can jointly open FCNR term deposit but another account holder must be a Non Resident. You cannot jointly open FCNR or NRE fixed deposit with resident Indian e.g. your parents residing in India, but you can open with your wife if she stays abroad with you and currently holds NRI status.


4) Can you break FCNR term deposit prematurely before completing tenure?
This is something vary bank to bank, most of the banks like ICICI doesn't pay you interest if you break the FCNR deposit before completing one year, other may charge a penalty for same. Before investing on FCNR check with the bank on their policy of premature withdrawal of money from FCNR term deposits. See here to learn more about how to break FCNR fixed deposit before maturity.


That's all about FCNR (Foreign currency Non-resident) term deposit, Its great opportunity and if you want to keep your money in their foreign currency to avoid currency risk, consider and explore FCNR term deposits before putting your money on local banks, with Rupee sliding further and high volatility in currency market, FCNR is good bet for hedging currency risk for personal investment.

12 comments:

  1. Hi Dude, Which bank is offering best interest rates on FCNR fixed deposits ? Can you provide comparision of FCNR interest Rates on major banks like ICCI vs SBI vs HDFC vs AXIS Bank vs Kotak etc. that would be helpful. Also please provide current interest rate on fcnr accounts.

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  2. I have few questions related to FCNR (Foreign Currency Non Resident) fixed deposit , hope you can answer :

    Can I open FCNR fixed deposit in Singapore Doller or HongKong Doller ? if not then on which currency FCNR fixed deposits are available? I heard about US Doller, Pound, EURO only, let me know if you can open FCNR fixed deposit on any other currency.

    What is the interest rate benefit you get by investing money on FCNR fixed deposit ? Do you get LIBOR rates or better ?

    Do I need NRE or NRO Savings account with Indian banks like ICICI or SBI for opening FCNR fixed deposit ?

    Can I break FCNR fixed deposit before maturity ? Does it has any penalty on lock in period ? After how many month I can break FCNR term deposit ?

    If I don't have any NRE or NRO Savings account, How Can I open FCNR fixed deposit, Do banks like HDFC and Kotak Mahindra provides pick up services in Singapore and HongKong ?

    Does interest earned on FCNR fixed deposit is taxable in India ? Do I need to pay income tax on interest either in India or US ? If I need to pay tax on US then which rate will apply?

    Apart from currency exchange rate what is other benefit which FCNR account provides ?

    Which is the best bank for opening FCNR account, ICICI , SBI or HDFC bank ?

    How and where I need to transfer money to invest in FCNR deposit ? Can I send Cheque or I need to do WIRE transfer, remember I don't have any NRE or NRO Saving account which can be used to make payment corresponding to FCNR term deposit ?

    If I open FCNR term deposit from my NRE and NRO Savings account, which exchange rate Bank will use to convert Indian Rupee into US Dollar ?

    What is difference if I invest in local foreign bank than putting money on FCNR deposit on Indian bank ?

    Sorry for so many questions on FCNR deposit, but these are my general doubt, I am researching so If I found my answers I will let u know but appreciate if you could answer these FCNR doubts.

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  3. Given that RBI has reduced interest rates for NRE and NRO account, is it good time to consider putting money on FCNR accounts? What are hidden cost involved in opening and keeping money in FCNR fixed deposit ?

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  4. I like your blog post. Keep on writing this type of great stuff. I'll make sure to follow up on your blog in the future.

    Money Transfer

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  5. Given recent fall of Rupees, currently trading 1 dollar = 63 Rupees, It's good decision to keep money on FCNR deposit to gain interest as well as benefit from exchange rates increment. It's best of both world, many bank provides upto 4% interested on FCNR deposits based upon currency e.g. USD, POUND or SGD.

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  6. What is the maximum interest rate we can get in a FCNR fixed deposit for USD, GBP and SGD? I am thinking to put FCNR deposit on a currency which stable and offer better interest rates, is US dollars is right choice?

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  7. What is the best bank to open a FCNR account in - and what is the interest rates for each of the banks- does anyone have a comparison chart.

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  8. Can we open FCNR deposits from NRE accounts, or do we need to open another FCNR accounts to create FCNR fixed deposit. Also can one FCNR account hold deposits in multiple currencies e.g. USD, GBP or JPY?

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    Replies
    1. @Aaron, FCNR account can only be opened as fixed deposits. Since you can only uses your foreign income to invest in FCNR fixed deposit, you need to either remit the money in respective foreign currency from overseas, or you can use the fund lying in your NRE saving account or fixed deposit. Though, given NRE account is maintained in Indian rupees and FCNR account is maintained at choice of foreign currency, using NRD account fund will be subject to exchange rate as INR will be converted to USD or GBP.

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  9. Can you transfer money from FCNR to NRE/NRO/ savings accounts of blood relatives?

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    Replies
    1. Hello Sachin, Yes, you can transfer money from FCNR to NRE/NRO saving account to your blood relatives. Since FCNR can be just a fixed deposit and not saving account, you need to break or wait until maturity. For NRE/NRO it's more easy and straightforward.

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