Which is a better option for NRI, FCNR FD or INR FD?


The world of finance is slowly and steadily turning into a global village. More prefer making offshore investments to minimize potential risks, enhance portfolio diversification, and facilitate fund growth. As a result, the inter-continental liquidity flow has increased substantially and emerged as FCNR FD.

However, when it comes to non-resident Indians (NRIs), the appropriate management of finances can often be a tricky job. The NRIs have to deal with uncertain income declaration and taxation laws on a continuous basis. They also have to focus on generating profitable monetary returns. In such a situation, merely holding an NRE or NRO account might not prove to be the best bet. 

To help NRIs grapple with such vivid problems, the Indian banking system has come up with the concept of FCNR or INR based fixed deposit accounts. These accounts are designed to provide a sense of efficiency and convenience. 

What Are FCNR And INR FD Accounts? 

An FCNR FD account is essentially an abbreviation for foreign currency non-repatriable fixed deposits. Unlike a savings account, NRIs can use FCNR to make deposits in currencies like the US Dollar, Euro, Pound Sterling, Australian Dollar, Canadian Dollar, or Japanese Yen. These accounts offer protection against exchange rate fluctuations while providing risk-free returns.

An INR FD account, on the other hand, is a regular fixed deposit instrument in which deposits can only be made in the local Indian currency. When compared to a savings account, an INR FD account provides higher rates of interest coupled with better profits and guaranteed returns. Nonetheless, the FD interest rates in this case, usually tend to vary from one bank to another. 

FCNR FD or INR FD Accounts: Which One Is Better?

When trying to choose between FCNR FD or INR FD accounts, most NRIs rely on a detailed FD interest rates comparison. They use online FD calculators to determine which account can help them reap the most benefits while securing an assured yield. 

However, as far as FD accounts are concerned, merely relying on fixed deposit rates is not the best way to find a credible investment alternative. You also need to consider factors like: 

●    Exchange Risks: As FCNR FD accounts hold deposits in foreign currencies, they protect you against any sudden or unexpected fluctuations in currency exchange rates. Consequently, your profits are hedged against any conversion loss.

●    Tax Impacts: Although the interest earned on FCNR FD is not taxable in India, it is taxed in the country of your residence. On the contrary, the interest earned on an INR FD is taxed as per the existing income tax laws in India. It is not liable to be taxed outside.

●    Repatriability: The principal and interest accumulated in an INR FD account are repatriable only up to an amount of US $1 million per year. But the principal and interest accumulated in an FCNR FD account are freely repatriable across countries.

●    Tenure: A single or joint FCNR FD account can be opened for a minimum tenure of 1 and a maximum tenure of three years. Comparatively, a single or joint INR FD account has a flexible tenure. Its duration can range from a period of 1-10 years.

●    Interest Rates: Last but not the least, the FD interest rates of an INR account significantly differ in terms of the total amount, overall term and bank norms. In contrast, the fixed deposit rates of an FCNR FD account are fixed by RBI. At present, they range between 3%-5% depending on the currency and tenure.

Apart from the aforementioned, both of these accounts also offer a number of additional facilities like an overdraft, fund transfer, premature withdrawal, etc. 

With the Reserve Bank of India continually vying to create a seamless flow of capital, the importance of both FCNR and INR FD accounts is bound to increase. This would allow NRIs to easily choose a fixed deposit instrument based on their specific objectives, requirements, needs, and concerns. In the longer run, such investments are most likely to harbor the potential of reaping quick dividends, lasting safety, and assured returns.

News Reporter