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Interest rates on US Dollar Deposits in FCNR (B ) accounts in India have traditionally been around 2-3%. However, they have spiked following rate rises in the US, coming close to what banks are offering on rupee deposits. The FCNR (B) account enables Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) to park their savings in term deposits with Indian banks and earn interest on it. As the principal and the interest are held in the currency in which the account is maintained, there is no loss of exchange, and the accounts are protected against forex rate risks.
“With the caps on interest rates on FCNR (B) accounts temporarily lifted, the interest on these accounts would be much higher than what they could be earning abroad. Moreover, the interest from these accounts is exempt from income tax in India,“ said Adhil Shetty, CEO of BankBazaar.com.
He further said, “The rate of interest on domestic term deposits is only 1-1.5% more than the FCNR rates. Moreover, they’re also taxable. The TDS is deducted, and the returns are taxed as per the tax bracket of the depositor. Given the volatile forex situation, the currency conversion costs, and taxes, the returns from investing in an FCNR (B) account may be at par with the domestic term deposit returns.”
Latest FCNR deposit interest rates (USD) 2022
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Source: Mint research
Note: Data taken from respective bank websites; Highest interest rate (% pa) offered by selected banks for respective tenors is shown in the table; Banks are listed on the basis of interest rate offered for 1 year, 2 to 3 years and 5 years; Interest on deposit up to USD 1 Million.
FCNR Account: An NRI who wish to maintain an FD account in India can opt for an FCNR (Foreign Currency Non-Resident) Account. The account allows you to save money earned abroad in foreign currency. It is a term deposit account in India for an NRI. One can maintain such a term deposit account in several foreign currencies.
For instance, you have a USD, GBP, EUR, etc., term deposit account for a tenure ranging from 1 to 5 years. In such an account, you get the interest in foreign currency. And also, the income is not taxable in India. The principal amount and the interest received on the deposits are entirely repatriable. However, unlike regular Indian or domestic term deposits, where you have deposits from 7 days to 10 years, in FCNR deposits, you need to keep a deposit for a minimum of 1 year.
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