FCNR vs NRE vs NRO Accounts for NRIs

Hey NRI, are you wondering how to save and invest your hard-earned money (in the same currency) in India?

Well, among the various investment options available in India, Foreign Currency Non-Resident (FCNR) accounts allow you to invest in foreign currency.

Isn’t that great? You don’t have to worry about the exchange rates and currency fluctuations.

The icing on the cake is that the interest earned on these accounts is not taxed in India, and the deposit amount is freely repatriable.

Well, are you curious about what these accounts have to offer?

Here's a detailed guide on FCNR accounts and how they differ from Non-Resident External (NRE) and Non-Resident Ordinary (NRO) accounts.

What are Foreign Currency Non-Resident (FCNR) Accounts?

FCNR accounts are term deposit accounts that allow you to maintain your funds in foreign currency and earn interest on them.

Unlike typical savings accounts, FCNR accounts have a fixed tenure ranging from one to five years, depending on the currency.

You can open FCNR accounts in various currencies such as US Dollars, Pounds Sterling, Euro, Japanese Yen, Australian Dollars, and Canadian Dollars, etc.

The interest rates* for FCNR accounts are in the range of:

USD: 3.5% to 6%
GBP: 2% to 4.9%
EUR: 0.1% to 3%
SGD: 0.5% to 3.95%

*Note: An average of different banks across different tenures as of November 2023.

Improper handling of these accounts might lead to tax notices from the Indian tax department. Here’s a guide to understanding common tax notices NRIs face.

Features of FCNR Accounts

FCNR accounts are an attractive investment option. Let's look at their features:

●   No exchange rate fluctuation: You invest and take back the money in foreign currency. Deposits are not converted to Indian Rupees. Thus, your FCNR deposits are immune to exchange rate fluctuations.

●   Higher interest than savings account: Interest rates on FCNR deposits are higher than savings accounts in most countries. FCNR deposit interest rates vary based on the currency, tenure and bank.

●   Fixed Tenure: FCNR accounts have fixed tenures ranging from 1 to 5 years. During this period, you earn interest at predetermined rates. Let's say you decide to invest in a 3-year FCNR deposit with an interest rate of 3%. Your interest earnings are locked in for the entire tenure.

●   Multi-currency option: FCNR accounts support a variety of currencies, such as USD, EUR, GBP, and more. This flexibility lets you choose a currency that aligns with your financial goals. For example, if you expect the Euro to strengthen against your home currency, you might opt for a Euro-denominated FCNR deposit.

●   Tax benefits: The interest you earn from your FCNR deposits is not taxable in India. However, depending on the tax laws in your country of residence, you may have to pay taxes.

●   Repatriation: You can repatriate your funds easily, as both the principal amount and the interest earned are fully repatriable. This means you can transfer your money back to your country of residence without any restrictions or limitations.

●   Loan against deposit: You can avail loan against your FCNR deposits, as most banks offer overdraft facilities up to 85% of your deposit amount. You can use the loan for personal or business purposes, either in India or abroad.

●   Deposit insurance: Your FCNR deposits up to INR 5,00,000 (equivalent in foreign currency) are insured by Deposit Insurance and Credit Guarantee Corporation (DICGC)

How Can You Transfer Funds to FCNR Accounts?

Depending on your convenience and preference, there are various ways to transfer your funds to the FCNR account. Some of the common modes of transfer are:

Online

●   Wire transfer: This is the fastest and most secure way to transfer your funds from a foreign bank account to an FCNR account. You can use the SWIFT code of the Indian bank and provide the details of your FCNR account, such as the account number, currency, and amount.

You may have to pay a nominal fee to the foreign bank for the wire transfer.

●   Online banking: If you have an NRE account with an Indian bank, you can use online banking to transfer your funds from the NRE account to the FCNR account. You can log in to your internet banking account and select the option to transfer funds to your FCNR account. You can choose the currency, the amount, and the tenure of the deposit. The funds will be transferred instantly, and you will receive a confirmation.

Offline

●   Cheque: You can deposit a cheque in foreign currency to your FCNR account. You can either mail the cheque to the Indian bank or hand it over at the branch. The bank will clear the cheque, and the funds will be credited to your FCNR account. However, this may take a few days and involve some charges.

●   Demand draft: You can also obtain a demand draft in foreign currency from a foreign bank and deposit it to your FCNR account. The Indian bank will process the demand draft, adding the funds to your FCNR account. This may also take some time and incur some fees.

Differences Between FCNR, NRO and NRE Accounts

FCNR, NRO, and NRE are three types of bank accounts that you can open in India. They have different features and purposes; you should understand their differences before choosing one.

Here is a table that summarizes the key differences between FCNR, NRO, and NRE accounts:

As you can see, FCNR, NRO, and NRE accounts have different advantages and disadvantages, and you should choose the one that best suits your requirements and preferences.

You can also open more than one type of account, depending on your sources and uses of funds. However, you must comply with the Reserve Bank of India (RBI) and the Income Tax Department regulations.

Should You Opt for FCNR Deposits?

FCNR deposits are a good option if you want to save and invest money in India without worrying about the exchange rate risk. FCNR deposits offer higher returns, tax benefits, repatriability, and loan facilities. However, FCNR deposits also have some drawbacks, such as:

●  Penalty on premature withdrawals: Any premature withdrawals you make will attract a penalty. 

○  Within one year: No interest is paid 

○  After one year but before the maturity date: Reduced interest rate is paid.

●  No cash deposits: You cannot deposit or withdraw cash in your FCNR account. You can only transfer funds electronically or through a cheque or demand draft.

●  Joint holding: You cannot open a joint FCNR account with a resident Indian. You can only open a joint FCNR account with another NRI or PIO.

Conclusion

Before investing, you should weigh the pros and cons of FCNR deposits and decide whether they suit your financial goals and needs. Though these accounts allow you to invest in foreign currency, the returns are quite low compared to other investment options in India - mutual funds.

Indian mutual funds have historically given returns in the range of 12% to 18%. And, as per the report by S&P Global, India is set to be the world's third-largest economy by 2030. If not now, when is the good time to be part of such a booming economy?

If you wish to explore your opportunities with mutual funds, speak to us, and we’ll help you pick the right fund based on your financial goals, risk appetite and investment horizon.

FCNR Accounts: Frequently Asked Questions (FAQs)

Is interest earned on FCNR accounts taxable in India?

No, interest earned on FCNR accounts is not taxable in India.

What currencies can you opt for to open a FCNR deposit account?

You can open FCNR deposit accounts in different currencies, some of which include:

●  US Dollar (USD)

●  Pound Sterling (GBP)

●  Japanese Yen (JPY)

●  Euro (EURO)

●  Australian Dollar(AUD)

●  Canadian Dollar (CAD)

●  Swiss Franc (CHF)

●  Singapore Dollar (SGD)

●  Danish Krone (DKK)

●  Hong Kong Dollar (HKD)

It's advisable to inquire with your bank about the possibility of booking a new FCNR deposit in your preferred currency. 

Are FCNR deposit accounts safe?

Yes, FCNR deposit accounts are among the secure investment options available for NRIs. Since these are term deposits with banks, the chance of default is quite low.

How is the FCNR Deposit account different from the NRE deposit account?

The primary difference between FCNR and NRE deposits is their purpose. FCNR deposits are ideal for parking foreign currency funds. On the other hand, NRE deposits are to manage your Indian income.

How do you open FCNR accounts?

Opening an FCNR account is straightforward and can be done from the comfort of your home. Choose a bank, check eligibility and rates, fill out an application with required documents, transfer funds, and receive confirmation for hassle-free international banking.

You can use your NRE account to deposit funds into an FCNR account. 

What are the documents required to open FCNR accounts?

For NRIs

●  Passport

●  Proof of NRI status – Employment, Residence Visa copy or Work, or Residence Permit

●  Address proof in India and overseas

●  Copy of your Indian PAN card or Form 60

●  Recent passport-size colour photograph

Additionally, for seafarers: Current work contract and copy of CDC along with the disembarkation stamp on the last page & FEMA declaration.

For PIOs

●  Valid passport

●  Valid PIO/OCI card or any other proof of PIO status

●  Address proof - Indian and overseas addresses

●  Signed and fully filled-in PIO declaration

●  Copy of your Indian PAN Card or Form 60

●  Recent passport-size colour photograph.

Can I use my NRO account to open an FCNR account?

No, you cannot use your NRO account to open an FCNR account. However, you can use your NRE account to transfer funds to open an FCNR deposit.

What happens to FCNR on maturity?

You can renew your FCNR accounts within 14 days after maturity. If you fail to do so, the bank will fix the interest rate on renewal. If you withdraw the renewed accounts before their tenure, the banks can take back the interest paid.