FCNR Deposit Explained: Rules, Interest, Tax, Currency Risk and FCNR vs NRE for NRIs

Your cousin in Dubai earns in dirhams, your uncle in New Jersey in dollars, and both ask the same question every few years: should we keep our savings in India, and if so, in rupees or not? An FCNR deposit is the answer many Indian banks are pushing hard this year. Two private banks alone raised over ₹89,000 crore of these deposits in the July–September quarter. This guide explains what an FCNR(B) deposit is, who can open one, how interest and tax work, what the currency risk really is, and how it compares with an NRE fixed deposit.

What is an FCNR deposit?

FCNR(B) stands for Foreign Currency (Non-Resident) Account (Banks). It is a term deposit that a non-resident Indian keeps with a bank in India, but in a foreign currency rather than in rupees. You deposit US$10,000 and, at maturity, you get back US dollars plus interest in US dollars. The rupee’s ups and downs do not change the dollar amount you get.

Key features, in brief:

The tenure, currency list and repatriability points are long-standing features of the scheme. Check the bank’s current product sheet for the exact currencies and rates.

Why banks want FCNR deposits in 2026

On 8 June 2026, RBI opened a swap facility for FCNR(B) deposits. Under it, a bank that raises fresh FCNR(B) deposits for at least three years can swap the dollars with RBI, which covers the principal but not the interest, according to RBI’s FAQ updated on 23 June 2026. In plain terms, the bank gets rupees to lend and RBI gets dollars for India’s reserves.

RBI also temporarily removed the interest rate ceiling on fresh 3–5 year FCNR(B) deposits from 17 June 2026. That relaxation was due to run to 30 September but RBI cut it short to 31 August 2026 in its amendment directions of 25 August. So from 1 September, normal ceilings apply again.

The effect shows in this quarter’s bank results: Kotak Mahindra Bank mobilised about ₹55,344 crore and IDFC First Bank ₹34,390 crore of FCNR(B) deposits, according to their filings. The RBI Bulletin of 23 October noted that “strong inflows under the FCNR(B) swap window augmented reserves.” Our report on NRI deposit flows has more on the numbers.

FCNR deposit interest: how rates are set

Each bank sets its own FCNR(B) rates, but RBI caps them. The ceiling is linked to a benchmark rate for each currency (such as the overnight alternative reference rate or swap rate for that currency) plus a spread that depends on tenure. RBI’s Interest Rate on Deposits directions also say banks may vary FCNR(B) rates only on two grounds: tenure and deposit size. A bank cannot, for example, offer a higher rate only to customers of one branch.

Because ceilings depend on rates abroad, FCNR(B) rates on US dollar deposits rise and fall with US interest rates, not with RBI’s repo rate.

How interest is paid and compounded depends on the bank. Ask whether interest is paid out or reinvested, and how often it is compounded.

A worked example

The rate here is an assumption for illustration, not any bank’s offer. Your maturity amount is fixed in dollars. What it is worth in rupees on that day depends on the exchange rate then:

These are our calculations. The 94.93 rupee close for 23 October is as reported by BusinessLine.

Currency risk: who carries it?

This is the part most people get wrong. On an FCNR(B) deposit, the bank carries the exchange-rate risk, not you. If your life and spending are in dollars, that is exactly what you want: your savings stay in your earning currency.

If, however, you plan to spend the money in India, the picture changes. With an NRE deposit, you convert to rupees on day one and earn rupee interest. With FCNR(B), you stay in dollars and convert later. If the rupee weakens in between, FCNR(B) gives you more rupees; if it strengthens, the NRE deposit would have done better. Nobody can tell you in advance which way it will go.

FCNR vs NRE fixed deposit

Many NRIs use both. If you already have an NRE savings account, you can also open NRE fixed deposits of different tenures; our FD ladder guide shows how to stagger them.

Tax on FCNR deposit interest

Under Indian income tax law, interest on FCNR(B) deposits is exempt for a person who is a non-resident, or who is “resident but not ordinarily resident” (RNOR). Once you become an ordinary resident, the interest becomes taxable in India. The new Income-tax Act in force from 1 April 2026 has renumbered many sections, so ask your bank or a tax adviser for the current provision rather than relying on an old section number.

The country where you live may tax the interest. In the US, for example, residents are generally taxed on worldwide income, and foreign bank accounts may need to be reported. Check with an adviser in your country of residence.

What happens when you return to India

An FCNR(B) deposit can usually run until maturity even after you return, but the interest rate and tax position may change once you become resident. RBI’s FEMA rules let returning residents move foreign currency into an RFC (Resident Foreign Currency) account. Tell the bank about the change in residential status promptly; do not keep an account as “NRI” after you have moved back for good.

Premature withdrawal and loans

• Before one year: banks generally pay no interest on FCNR(B) deposits withdrawn before completing one year. After that, a penalty may apply, as per the bank’s policy.
• Loans against the deposit: RBI’s FAQ says banks may lend to FCNR(B) account holders and mark a lien on the deposit. This can be cheaper than breaking the deposit if you need money for a short time.
• Nomination: add nominees when you open the deposit. Since 1 November 2025 you can name up to four.

How to open an FCNR deposit

1. Check eligibility: you must be an NRI or a person of Indian origin as defined under FEMA.
2. KYC: passport, visa or residence permit, overseas address proof, PAN or Form 60, and photographs. Banks may accept video KYC for some NRIs; see our video KYC explainer.
3. Fund it: remit foreign currency from abroad, or transfer from your NRE account. Moving money from an NRO account counts against the US$1 million a year repatriation limit and needs tax paperwork.
4. Choose currency and tenure: match the currency to where you will spend the money.
5. Get the deposit advice: check currency, amount, rate, compounding and maturity date.

Is my FCNR deposit insured?

DICGC insures deposits held with banks in India up to ₹5 lakh per depositor per bank, and a few categories, such as deposits of foreign governments, are excluded. A large FCNR(B) balance in one bank will be far above that limit, so ask DICGC or the bank how a foreign-currency balance is counted if this worries you. Our DICGC guide explains the basics.

FAQs

Can a resident Indian open an FCNR deposit?

No. It is meant for non-residents. Residents can hold foreign currency only in specific permitted accounts.

What is the minimum tenure for an FCNR deposit?

One year. The usual maximum is five years.

Is FCNR deposit interest taxable in India?

Not while you are a non-resident or RNOR. It becomes taxable once you are an ordinary resident.

Which currency is best?

The one you will spend. Do not choose a currency only for its higher rate.

Takeaway: An FCNR deposit keeps your savings in your earning currency with the bank carrying exchange-rate risk, and its interest is tax-free in India while you are non-resident. Pick it for money you will spend abroad, compare rates by currency, and hold at least one year.