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Can an NRI invest in a fixed deposit with foreign exchange in a Foreign Currency Non-Resident Account (FCNR)?

A Non-Resident Indian(NRI) or Person of Indian Origin(PIO) can invest and maintain a term deposit in foreign currency in an account called FCNR (Foreign Currency Non-Resident Account), they can also earn interest from this term deposit. There are few foreign currencies that are accepted to be used in these accounts they are:

• Euro
• British Pound
• US Dollar
• Australian Dollar
• Japanese Yen
• Canadian Dollar

These accounts are not savings accounts but are fixed deposits accounts.

Benefits of a FCNR in a nutshell

• One of the biggest benefits of this kind of deposit is that, the account is maintained in foreign currency, therefore it eliminates the constant fluctuating currency conversion rates.
• The maturity term of these deposits should be for a minimum of 1 year and up to 5 years.
• The interest rates earned on these deposits are regulated by the RBI, and are the same in all banks across the country. But the rates of interest are generally higher, than investing in the countries wherein the NRI is residing. The general rate of interest are mentioned below:
  • USD, GBP and CAD for a term of 1 year but less than 2 years the interest rate ranges from 1.30% - 1.52%; For a term of 2 years to less than 3 years ranges from 1.71% - 2.06%; For a term of 3 years to less than 4 years ranges from 1.83% - 2.27%; For a term of 4 years to less than 5 years ranges from 1.96% - 2.46%; For a term of 5 years the interest ranges from 2.12% - 2.62%
  • But for EURO and JPY for a term of 1 year but less than 2 years the interest rate ranges from 0.80% - 0.89%; For a term of 2 years to less than 3 years ranges from 1.10% - 1.14%; For a term of 3 years to less than 4 years ranges from 1.16% - 1.20%; For a term of 4 years to less than 5 years ranges from 1.19% - 1.96%; For a term of 5 years the interest ranges from 1.24% - 1.43%
  • For the AUD the rate of interest offered is the highest for a term of 1 year but less than 2 years the interest rate is 2.72%; For a term of 2 years to less than 3 years is 2.97%; For a term of 3 years to less than 4 years ranges is 3.06%; For a term of 4 years to less than 5 years is 3.31%; For a term of 5 years the interest is 3.46%
• The interest earned on these deposits are tax free in India and are fully repatriable.

How does an NRI or PIO transfer funds to an FCNR account?

In an FCNR account held by an NRI or PIO funds will need to come from their overseas held funds. The many ways in which they can fund the account is:

• The PIO or NRI can transfer from their overseas account to their FCNR account. This can be done via wire transfer, cheque transaction, or online banking.
• Funds can be transferred from an existing NRE account.
• When an NRI or PIO visits the country, they can use their foreign currency notes or travelers cheques to fund the FCNR account.

What are the features of an FCNR?

• FCNR (Foreign Currency Non-Resident) account can be only be opened by a PIO or NRI.
• As the name stated Foreign Currency Non-Resident that account can only be opened with foreign currencies, eliminating the risk of fluctuating conversion rates.
• There is a regular interest that's paid on the FCNR account, the interest rate is controlled by the RBI and is the same across all banks.
• The FCNR is not a savings account but is a term deposit, and therefore the term should have a minimum maturity of 1 year and should be less than 5 years.
• An NRI or PIO can jointly open the FCNR account with a Resident Indian as a joint account.
• This account also has a nomination facility, the nominee can be any NRI, PIO or Resident Indian.
• The NRI or PIO can even apply for a loan facility against the FCNR, but these loans can't be used for real-estate, agricultural activities, or re-lending
• The currency available in the account can be changed to another currency, but the cost is to be taken by the account holder.
• The interest earned on these accounts are completely tax free and so is the principal, although these accounts are subject to wealth tax, the interest earned.

Can funds be withdrawn before the FCNR deposit has matured?

Yes, a withdrawal is allowed before the FCNR term has matured at the discretion of the bank, but there is a penalty charge levied for the withdrawal. The penalty charges for premature withdrawal is an interest of 1 %. But if the deposit in closed within the year on opening, then there’s no interest paid for the period of the term deposit.

FCNR term deposits rates (effective from August 2015)

As per the SBI website the below rates of interests are: