Non-Resident Indians or NRIs who want to open an account in India, now have various options to choose from. The banks and financial institutions offer options such as Non-Resident Ordinary (NRO) Savings Account, Non-India External (NRE) Fixed Deposit Accounts, Foreign Currency Non-Resident (FCNR) Fixed Deposit account and so on. FCNR Fixed Deposits are considered highly valuable as accounts can be held in foreign currencies by depositing income earned overseas.
What is FCNR Deposit?
Any Non Resident individual of Indian nationality or of Indian origin (NRIs and PIOs) can open and maintain an FCNR deposit to earn regular yet reasonably high interest on their money. These are basically Fixed Deposits and not Savings Accounts. Before 2011, FCNR deposits were only permissible in the six major currencies – US Dollar, Euro, Pound Sterling, Australian Dollar, Canadian Dollar and Japanese Yen.
However, after the mandate from the Reserve Bank of India (RBI) in 2011, the dealer banks and financial institutes in India can accept FCNR deposits in any ‘permitted currency’. Here, ‘permitted currency’ means any currency which is easily and freely convertible. Some of the popular permitted currencies include – Swiss Franc, Danish Krone and Swedish Krona among others.
Salient Features of a FCNR Deposit
Specifically designed for NRI customers, FCNR Deposit offer a number of features to the account holder. Some of them have been discussed here:
- These deposits are meant to Person of Indian Origin (PIO) and NRIs. They can open these deposit to park their savings to get amazing returns in the form of interest at regular intervals.
- One can open a FCNR deposit in specific currencies, hence, the risk of currency value and fluctuation is eliminated.
- FCNR deposit interest rates are paid by the bank or by the concerned financial institution on a regular or specified period.
- Providers of these deposits offer a different range of maturity period from 1 year to 5 years. One can choose their preferred maturity or investment period as per their needs.
- These Fixed Deposit accounts can be opened both by single individuals and jointly. FCNR Joint Fixed Deposit Accounts can be opened along with other NRI customer as well as Indian customer. As per the regulatory guidelines, the resident can operate the account as Power of Attorney Holder in this case.
- Just like other fixed deposit accounts, the providers or banks offer nomination facility for FCNR deposits as well. One can make any PIO or NRI or even resident Indian nominee for their FCNR deposit.
- Conversion in these deposits from one currency to another designated currency is permitted. However, the account holder has to pay a certain cost for the same.
- The depositor can also avail the loan facility against their FCNR Fixed Deposit However, the loans cannot be used by them for investment in real estate sector, re-lending or carrying on plantation or agricultural activities and cannot be repatriated outside India. However, balances in FCNR accounts can be repatriated outside India and also be used for local payments.
- Recurring Deposits (RDs) are not accepted by the bank or service provider under the FCNR deposits.
- Premature withdrawal is allowed but with penalty charges are levied or interest may not be provided if withdrawn before a certain time period. It is upon the bank’s discretion.
- The biggest advantage of FCNR Fixed Deposits is that the interest earned or gained on these deposits are not taxable in the country. In addition to this, the principal amount in these deposits is also not taxable under the Wealth Tax in India and both the principal amount and the interest are fully repatriable i.e. transferable.
What is the Maximum Tenure for FCNR Deposit?
The minimum tenure of the FCNR fixed deposits was initially 6 months and it was raised to 1 year in October 1999. As per the current regulations of RBI, from July 2005 onwards, now banks are allowed to accept FCNR fixed deposits for the maximum tenure of 5 years against the earlier maximum duration of 3 years. To put it simply, the tenure for FCNR fixed deposits is 1 year to 5 years now.
Premature or Early Withdrawal of FCNR Fixed Deposits
The banks or service providers may have different rules and regulations regarding premature or early withdrawal. For instance, the FCNR deposits offered by Yes Bank will not provide any FCNR deposit rate of interest if the deposit is withdrawn before the completion of 12 months.
Similarly, the Axis Bank may ask or charge a penalty if the withdrawn is done before the stipulated term of minimum 1 year. In addition to this, premature withdrawal is not permitted if the depositor has already availed the loan against the deposit. In simple terms, it is important to reconfirm the terms applicable on premature or early withdrawal of these deposits before or while investing in it.