FCNR account: foreign currency deposits for NRIs

Non-resident Indians who earn abroad often want to keep some savings in India without worrying about the rupee. The FCNR account is built for this. This guide explains what it is and how it works.

Quick answer

An FCNR account, short for Foreign Currency Non-Resident account, is a fixed deposit that NRIs can hold in India in a foreign currency such as US dollars, pounds or euros. Because both the deposit and the interest stay in foreign currency, the NRI avoids the risk of the rupee changing value. It is regulated under RBI rules.

Key takeaways

• An FCNR account is a foreign currency fixed deposit for NRIs.
• It is held in currencies like dollars, pounds or euros.
• Both deposit and interest stay in foreign currency.
• This removes rupee exchange rate risk for the NRI.
• It is regulated under RBI rules.

What is an FCNR account?

FCNR stands for Foreign Currency Non-Resident account. It is a type of fixed deposit that a non-resident Indian, or NRI, can open in India, but held in a foreign currency rather than in rupees.

So an NRI earning in dollars can keep a deposit in dollars in an Indian bank. The money stays in the foreign currency for the whole term, and the interest is also paid in that currency.

How does an FCNR account work?

An FCNR account is always a fixed deposit, held for a set term. The NRI deposits foreign currency, the bank holds it in that currency, and pays interest in the same currency at the end of the term.

Because everything stays in the foreign currency, the account works much like a foreign currency deposit that happens to be held in India. It is available in several major currencies.

Why do NRIs choose an FCNR account?

The main reason is to avoid exchange rate risk. If an NRI put dollars into a rupee deposit, a fall in the rupee could reduce the dollar value of their savings. With an FCNR account, the money stays in dollars, so the rupee's ups and downs do not affect it.

This makes FCNR deposits attractive for NRIs who think in foreign currency and may want to take the money back abroad later. It gives them Indian bank interest without rupee risk.

How is FCNR different from NRE and NRO accounts?

NRIs have a few account types, and the key difference is the currency and purpose. An FCNR account is a foreign currency fixed deposit. An NRE account is held in rupees for foreign earnings. An NRO account is held in rupees for income earned in India, such as rent.

So the FCNR account is the one that keeps money in foreign currency and removes exchange rate risk, which is its main appeal.

What should an NRI keep in mind?

FCNR accounts are governed by RBI rules, including which currencies and terms are allowed and how the money can be moved. Interest rates depend on the currency and the bank, and can differ from rupee deposit rates.

Tax treatment and rules can change, so an NRI should check the current position and consult a professional before deciding. This is knowledge to understand the product, not advice for any specific person.

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