Saturday, February 8, 2014

Can you break FCNR Deposit before Maturity - Premature Withdrawal Penalty, ICICI, SBI, Kotak, HDFC Bank

Recently one of my friend ask me about breaking his FCNR fixed deposit, which he has recently done for 3 years, when banks was offering high interest rates up to 5%. He has opened his FCNR deposit with ICICI bank and was in need of some money in short term. He wasn't aware that ICICI bank doesn't allow you to break your FCNR fixed deposit if its for tenure of 3 years or higher. So he eventually ended up borrowing money at higher interest rate. This brings an important point about opening FCNR fixed deposit, you must know the closure requirement for your FCNR deposits, asking simple questions like, can I break my FCNR Deposit before the maturity period? to bank relationship manager is the best thing to do. AS I had said previously, in case of breaking your foreign currency Non resident fixed deposit, you may end up getting nothing or lower than expected rate, but in some special cases like this, you might not even able to withdraw your money. As a revision, here I am sharing what every NRI investor should know about closing a FCNR fixed deposit before completing its tenure. Terms and conditions vary from bank to bank, but you will get an idea, what could happen if you think of breaking foreign currency non resident deposit. This is also a good guide for Non resident Indians, which are thinking to park their extra/surplus dollars in Foreign currency deposits. Just a note, this more than 3 years withdrawal penalty is mainly because of RBI's move of offering forward SWAP deal at rate of 3.5% as against the current market rate of 7% last year, when Rs was tumbled to record low, almost touching 1:69 against US Dollar. Since that rate was only for tenure of 3 years or more than 3 years, banks are now locking in money to avoid any losses. By the way FCNR is not the only option, you can also earn high interest rates on NRE and NRO deposits, but before that you should know difference between NRE, NRO and FCNR fixed deposits.

ICICI bank Premature Withdrawl Condition for FCNR deposit

ICICI bank allow you to close your FCNR fixed deposit prematurely, only if they are opened with less than 3 years tenure.

As stated in their website
You can close your FCNR Deposits before the due date in case the deposit is booked for a tenure of less than 3 years . The following clauses would be applicable:

Before completion of 1 year: No interest will be payable
After completion of 1 year: No penalty will be levied in case of premature closure of FCNR deposits booked/renewed on or after June 1, 2013. Interest shall be paid at the applicable rate for the period the deposit remained with the Bank. Which is not bad, but only if you know before opening FCNR deposit. You can also request for a Closure of Deposits by applying Online through "Service Request" option available in your Internet Banking NRE Saving account.

Kotak Mahindra Bank FCNR fixed deposit premature closure

FCNR Fixed deposit premature penalty, ICICI, SBI, Kotak and HDFC
Kotak Mahindra Bank in turn has a higher penalty for premature withdrawal of foreign currency non resident deposits. For FCNR deposits over 3 years, no premature withdrawal will be allowed during the first year and the deposit will be locked in for 3 years. Subsequently, if a premature withdrawal needs to be made, it will be subject to a penalty. As per bank website, 'the penalty will be computed at 7.5 percent per annum plus the prevailing USD/INR swap rate in the market for the residual tenor of the original deposit, applied over the period for which the deposit is held. The Customer shall not challenge the calculation of penalty done by KMBL and such calculation shall be final and binding on the customer. So its more complex than what you think. My advice is that you should not put any foreign currency money, which you need in short term, because that will not do any good.

SBI FCNR Deposit Premature Closing penalty

State Bank of India, the SBI has two separate types of FCNR deposits - a regular FCNR (B) deposits and a special FCNR (B) deposit. The special FCNR (B) deposit does not allow premature withdrawal on deposits over 3 years but also offers a higher rate of interest. On the other regular FCNR (B) deposit allows premature closing, which is subject to a penal interest of 1%. Also No interest is payable if the deposit is closed within a year. It means this is also in-line with other banks, nothing drastically different.

HDFC Bank FCNR Fixed Deposit Premature Withdrawal

HDFC Bank also doesn't allow you to close your FCNR fixed deposit if it is for more than 3 years of tenure. For FCNR deposits of shorter tenure, No interest is paid if the FCNR Deposit is prematurely withdrawn before 1 year. Also the interest rate applicable for premature closure of deposits (all amounts) will be lower of:
The base rate for the original/contracted tenor for which the deposit has been booked OR
The base rate applicable for the tenor for which the deposit has been in force with the Bank.
As per bank's website, Partial or premature withdrawals will not be permitted for FCNR deposits booked/renewed for a tenor of 3 years and above during September 25, 2013 till November 28, 2013

Other Indian banks like Axis Bank, YES Bank also has similar set of rules, even foreign banks which has Indian operations e.g. DBS Bank, Standard Charted bank pays No interest is if FCNR deposit is withdrawn before completion of 12 months, also as oppose to NRE fixed deposits, Interest is compounded half-yearly.

So a big lesson learned for my friend but those who are interested in opening in FCNR fixed deposit, must enquire about premature closing penalties and procedure before opening FCNR deposit. I agree it all when rates are good, but you should your due diligence. FCNR is very good products for Non resident Indian because your money is kept on foreign currency of your choice, so its free of exchange rate risk. Also FCNR interest is tax free in India and both interest and principle in FCNR can be freely repatriated outside India. IF you need money in near future better keep it safe in saving account to avoid borrowing at higher interest rate, when need arises or do deposit for shorter tenures. By the way FCNR deposit rates changes every month and some time even before that, so don't forget to check bank website for current FCNR rates before opening your account.

1 comment:

  1. You can always ask for a loan against your FCNR deposits.. many banks allow loans in INR and also in the foreign exchange of choice


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