An NRI holding dollars has two options for keeping that money in India. Convert to rupees and earn a rupee-denominated return, or hold the money in its original currency and skip the conversion. The FCNR (B) account serves the second option.
FCNR stands for Foreign Currency Non-Resident. The “(B)” refers to the Banks scheme under which these deposits operate. Money placed in an FCNR deposit stays in a foreign currency from the day it is placed to the day it matures, and it is a term deposit, not a savings account.
what makes an FCNR account different
The currency is the defining feature. An NRE account is rupee-denominated, so foreign earnings remitted into it are converted at the prevailing exchange rate. An FCNR deposit skips that conversion. Dollars stay dollars, pounds stay pounds, and the depositor carries no rupee exposure for the deposit’s duration.
The difference shows up most clearly when the rupee is weak or expected to weaken. An NRE deposit might advertise a higher headline rate, but if the rupee falls sharply during the deposit period, the return in the depositor’s home currency can shrink or turn negative. An FCNR deposit removes that uncertainty because principal and interest are both repaid in the original currency.
the currencies and tenures allowed
Six currencies are permitted by the RBI: US Dollar (USD), Pound Sterling (GBP), Euro (EUR), Australian Dollar (AUD), Canadian Dollar (CAD), and Japanese Yen (JPY). Swiss Franc and Singapore Dollar are offered by some banks.
The tenure runs from one year to five years. Shorter tenures are not available, which distinguishes FCNR from a savings product.
interest rates and the 2026 special window
Rates are set by banks within RBI guidelines and move with global interest rates and hedging costs. In normal conditions, USD FCNR rates sit below comparable NRE rupee rates because the bank’s hedging cost eats into what it can offer.
June 2026 changed that. The RBI announced a special swap facility where the government bore the hedging cost on fresh 3-5 year FCNR deposits, letting banks offer much higher rates. HDFC Bank and ICICI Bank raised their 3-5 year USD rates to 6.25%, and PNB went up to 6.50% on certain tenures.
The window closed on August 31, 2026, earlier than expected. Rates fell the next day. HDFC Bank’s 3-5 year USD rate dropped from 6.25% to 3.50%. ICICI Bank went to 3.25%. PNB’s five-year rate dropped from 6.50% to 3.06%. The high rates were a policy tool, not a permanent feature.
the tax treatment
Interest on FCNR (B) deposits is exempt from Indian income tax for eligible non-residents, as long as the account holder remains a non-resident under FEMA or qualifies as RNOR under tax law.
The exemption depends on where the depositor lives. NRIs in the UAE, which does not tax personal investment income, keep the interest fully tax-free. NRIs in the US must report the same interest to the IRS as ordinary income, which lowers the after-tax return, and may also need FBAR and FATCA filings if balances cross reporting thresholds.
repatriation and loans
Principal and interest are freely repatriable in the original foreign currency. The USD 1 million annual cap that applies to NRO accounts does not apply here.
Loans against the deposit are available. Rupee loans can go to the depositor or a third party, subject to margin requirements. Foreign currency loans can also be arranged, often through GIFT City branches.
premature withdrawal rules
Withdrawing before one year means no interest is paid at all.
Past one year but before maturity, the rate paid is lower than the contracted rate. In practice, the bank pays the rate applicable for the period the deposit actually stayed with it, minus a penalty. HDFC Bank applies a 1% penalty on the applicable rate for the actual holding period.
what happens when the NRI returns to India
The deposit can run to maturity at the contracted rate if the depositor becomes an Indian resident. After maturity, funds can move to a resident rupee account or, where eligible, a Resident Foreign Currency (RFC) account.
The tax exemption is tied to non-resident status. Once the depositor becomes a Resident and Ordinarily Resident, the exemption ends, and interest earned after that point becomes taxable.
what retail investors should take from this
The FCNR account is not built to maximise returns. It is built to protect currency. What it offers is the certainty of getting back the same number of dollars that were placed, regardless of what the rupee does during the deposit.
The 2026 rate window was an exception. Anyone comparing FCNR to NRE today should expect FCNR rates to be lower. The trade-off is eliminating currency risk, not earning a higher yield.
For NRIs whose future expenses are in dollars, pounds, or euros, FCNR keeps the money in the currency it will eventually be spent in. For NRIs whose expenses are in rupees, an NRE deposit may serve the purpose better.
Frequently Asked Questions
1. What is an FCNR (B) account?
A term deposit for NRIs held in a designated foreign currency instead of Indian rupees. It runs for 1 to 5 years, and both principal and interest are repaid in the same currency that was deposited.
2. Is FCNR interest taxable in India?
No. Interest on FCNR (B) deposits is exempt from Indian income tax for eligible non-residents, provided the account holder remains a non-resident under FEMA or qualifies as RNOR.
3. What is the minimum and maximum tenure for an FCNR deposit?
The minimum is one year and the maximum is five years. Shorter tenures are not available.
4. Which currencies can be used for an FCNR deposit?
Six are designated by the RBI: USD, GBP, EUR, AUD, CAD, and JPY. CHF and SGD are offered by some banks.
5. What happens if an FCNR deposit is withdrawn early?
No interest is paid if the deposit is withdrawn before one year. After one year, the rate is reduced and a penalty may apply depending on the bank’s terms.
