Pros & Cons of FCNR Deposit Account

If you are an NRI and want to maintain an FD (Fixed Deposit) account in India, you can opt for a Foreign Currency Non-Resident Account (FCNR) that helps you to save money earned abroad in foreign currency that is freely convertible.

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Read on to know more about the Pros and cons of FCNR Deposit Account in detail: 

What is an FCNR Deposit Account? 

FDs (Fixed Deposits) is one of the safest options for investment, not only for Indian residents but for non-resident Indians (NRIs). One of the common FDs among NRIs is the Foreign Currency Non-Resident Bank (FCNR) account. FCNR is a fixed deposit account that is specifically designed to provide NRIs an option to keep their money in desired foreign currencies of their choice in Indian Banks and earn better returns at the same time. 

Usually, most of the banks book FCNR deposit accounts in the below currencies: 

  • Euro 

  • US Dollars 

  • Pounds Sterling 

  • Australian Dollars 

  • Japanese Yen 

  • Canadian Dollars 

The option to hold an FCNR deposit account in the above-mentioned currencies can vary from one bank to another. 

FCNR Deposit accounts are a great option for NRIs if you want to retain your money in foreign currencies. Since your deposited money will be placed in a foreign denomination, you can be saved from the risk of exchange rate variabilities. It also makes sure that you earn good and free of risk returns. In addition to this, if you are not sure about where to invest or save your hard-earned savings, you can consider an FCNR account. 

There are a number of factors that an NRI should consider before opening an account in India such as family, currency, tax, and repatriability factor. 

What are the Pros & Cons of FCNR Deposit Accounts? 

  1. Advantages of FCNR Deposit Accounts 

    Here are some of the benefits of the FCNR Deposit account that make it a feasible option to save, invest and manage funds in India. Let’s discuss:  

    • FCNR accounts are mainly protected against the risks of forex rates (i.e., the change in rupee value vis-à-vis the currency in which the account is denominated) as they are managed in a foreign currency. 

    • FCNR accounts are proposed against exchange risks since they are managed in foreign currency 

    • These deposit accounts are denominated in various major currencies like USD, GBP, AUD, and more 

    • Interest earned on FCNR account deposits in India is exempted from Income Tax 

    • FCNR accounts also have a provision for joint account ownership. This means that FCNR deposit accounts can have 2 or more NRIs joint account holders. Though, a joint account with any other Indian resident is not allowed. 

    • Both interest and principal are repatriable on a free basis to the residential country of the depositor without restrictions. 

    • The FCNR account’s lock-in period are payable after the end of 1st year 

    • The account holders of FCNR accounts receive benefits from the compounded interest which is computed on a half-yearly basis after the 1st year

    • FCNR holders are also entitled to rupee loans for any kind of investment in India that can be repaid from the maturity benefits.  

    • Rupee loans against the funds in the FCNR deposit accounts can be offered to the account holders for any kind of investment in India. Loans for foreign currency outside India are permissible to the account holder and can be repaid from the maturity payouts. Some banks also offer loans facility to companies against the security of FCNR accounts. 

    • All authorized banks which provide FCNR Deposit accounts set the rates of interest within the upper limit as decided by the RBI.

    • You can also opt for an overdraft facility over your FCNR Deposit account 

    • The FCNR’s principal amount and the interest earned are fully repatriable which means that it is completely transferable

  2. Disadvantages of FCNR Account Holders 

    • If FCNR deposit accounts are registered against a weak bank, then they may not be able to pay back upon maturity. The upper limit on a credit guarantee in India is approximately Rs. 100000 or1600 USD is considered low. If the bank files for bankruptcy or at the time of a financial crunch, the deposit security will be at risk. Therefore, various experts believe that deposit insurance almost does not exist in India which could be a concern for FCNR account holders.  

    • FCNR Deposit accounts are a type of term deposit so in such cases no interest is paid if they are withdrawn in less than a year

    • The bank might charge swapping prices at the time of transferring your deposit

    • The Premature withdrawals from FCNR Deposit accounts will charge penalties 

    • In India, the foreign currency loans against FCNR deposit accounts can be taken by account holders only 

    • While the earned interest on FCNR Deposit accounts is free of taxes and it possibly will be taxable based on the residential country of NRIs. 

    • FCNR account deposits are provided for term deposits, not for savings, current, and recurring accounts. 

    • These accounts can be renewed in 14 days after maturity time, failing which, the authorized bank will fix the rates of interest on renewal. If the renewed FCNR accounts are before a fixed time, banks can return the interest paid. 

At Last!

FCNR deposit accounts are an excellent option of investment for NRIs who are looking to keep their foreign earnings in India and earn stable returns at low risk. However, there are a number of investment options for NRIs such as bonds, equities, etc. So based on your risk appetite and the investment rules of NRIs, you should consider a product that aligns with the long-term financial objectives.

FAQ's

  • Q. Is FCNR Deposit account a good option for investment? 

    Yes. FCNR Deposit accounts can be considered to be a good option to invest for NRIs who are looking to invest in a term deposit scheme. 
  • Q. How FCNR Deposit account is different from the NRE deposit account? 

    The major benefit of the FCNR deposit account is to repatriate the maturity payouts of the benefit. It helps to secure your interest against the risks related to currency. On the other hand, NRE accounts are more beneficial if the depositor is certain about the retainment of an investment portfolio.

*Past 10 Year annualised returns as on 01-02-2024
*All savings plans are provided by the insurer as per the IRDAI approved insurance plan. Tax benefit is subject to changes in tax laws. Standard T&C Apply
^10(10D) Tax benefit are for Investments made up to Rs.2.5 L/ yr and are subject to change as per tax laws.
~Policy issuance to happen on 26th October if all requirements are completed by 25th October
#The lumpsum benefit is calculated if policyholder invested ₹10000 monthly for 10 years in the fund with a policy term of 20 years. This Point To Point past performance data of last 10 years has been used to illustrate a scenario for the customers benefit. It is assumed that the past 10 years returns would have also been delivered in last 20 years. This is not guaranteed and not in anyway indicative of what the customer may actually get 20 years from now. The investment is subject to market risk and the risk is borne by the policyholder.

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