All about FCNR deposits for NRI

Several NRIs invest in the Indian investment market, but the FCNR deposit is one of the most lesser-used options. Read on to know more about the FCNR account.

Foreign Currency Non-Resident (FCNR) Account is meant for the NRIs (non-resident Indians). It is essentially a fixed deposit account, which works similar to the FD for resident Indian citizens. The only difference is that the FCNR account deposit can be only in foreign currency, and the interest earned on the deposit is in the same currency.

FCNR account was introduced in India in May 1993. It can be opened with any Indian bank of your choice by depositing money in designated currencies. As an NRI, if you are looking to invest in India, an FCNR deposit is an excellent low-risk investment opportunity that provides decent returns.

What are the specific currencies allowed in an FCNR account?

You can open an FCNR account by depositing foreign currency only. While the currencies accepted varies from bank to bank, some of the most popular currencies that banks accept include American Dollar, Australian Dollar, UK Pound Sterling, Canadian Dollar, Japanese Yen, and Euro.

Features and Benefits of FCNR account

  • It is a fixed deposit account that is meant only for the NRIs.
  • Being a term deposit, it comes with a lock-in period ranging from 1-5 years. You can choose the deposit term as per your specific financial goals.
  • You can open a joint FCNR account with another NRI.
  • The interest rate on FCNR deposits vary from bank to bank based on the ceiling determined by the Reserve Bank of India (RBI)
  • You can avail of a nomination facility for the FCNR deposit. The nominee can either be an Indian resident or an NRI. In the event of your unfortunate demise before the deposit term, the bank will repay the principal amount and the interest earned to the appointed beneficiary.
  • You can continue to hold the FCNR account until its maturity date even if your residency status changes before the end of the deposit term
  • The FCNR account deposit is freely repatriable, which means you can easily transfer the funds to the nominee account or your NRE account without any hassles or limitations.

Drawbacks of FCNR Account

While the NRIs can avail several benefits from FCNR account, it has a few disadvantages too, which are:

  • You cannot open a joint account with a resident Indian.
  • You cannot withdraw the funds from your FCNR before the end of the term. If you wish to withdraw before maturity, you may be subject to paying the penalty.

What are the tax implications on FCNR returns?

The interest earned on your FCNR deposit is tax-free in India.

The amount you transfer from FCNR account to Resident Foreign Currency (RFC) account or Resident Rupee Account (RRA) after maturity is tax-free.

Loan Against FCNR Deposit

Most banks in India allow the FCNR account holders to borrow against their deposits provided to specific conditions. You can avail of a loan against FCNR or personal or business purposes. You can avail of the funds either in Indian currency or foreign currency in which you hold the deposit. Another significant feature of FCNR account is that you can avail of the loan either in India or in the country of your current residence. Make sure that you read about the bank’s terms and conditions before applying for the loan.

Is FCNR a worthy investment?

FCNR is an excellent investment option if you are looking to keep your foreign currency savings secure by avoiding the risk of exchange rate fluctuation. It is a good investment opportunity for your short-term savings goals.

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