Are FCNR (B) Deposits Risky For Non Resident Indians (NRIs)?

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Foreign Currency Non Resident Deposits (FCNRB) can be opened by a Non Resident Indian (NRI), though there are certain restrictions on them.

These deposits are popularly called (FCNR) B Deposits and can be held only in foreign currency. NRIs and PIOs are also permitted to open such accounts and so are OCIs.

Are FCNR (B) Deposits Risky For Non Resident Indians (NRIs)?
Interestingly, foreign tourists on short visits and Indian NRI students can also open these accounts.

What is the difference between NRI, PIO and OCI

You can open these deposits in a host of currencies like the Great Britain Pound (GBP), US dollar, Japanese Yen, Euro and the Australian Dollar. The interest rates differ depending on the currency that you hold the deposit under.

Here is a quick look at the interest rate on FCNR (B) accounts in various currencies offered by State Bank of India. 

PeriodInterest Rate on US dollar DepositsInterest Rate on Euro DepositsInterest rate on Great Britain Pound Deposits
1-2 years1.34%0.81%1.51%
2-3 years1.97%1.10%2.16%
3-4 years2.31%1.20%2.34%

As can be seen from the table above, the maximum interest rates that one gets on a FCNR (B) account is higher in the case of the GBP.

Risks involved in opening FCNR (B) fixed deposit accounts

One of the biggest risks that you face when opening these accounts is the currency risk. However, currency risks can be hedged and there are experts who can provide you solutions for the same. The one advantage of opening the FCNR (B) account is that they are freely repatriable. The interest and the principal amount can be renewed or repatriated as the case maybe.

These accounts will have the usual permissible ways in which accounts can be credited. For example you can credit the accounts by way of transfer from other NRE and NRO accounts. One can also have a fresh credit done from an overseas channel.

There are various types of FCNRB accounts that you can open including term deposits and special term deposits. Nomination can be done through these deposits and as mentioned earlier, both the interest and the principal are repatriable.

Should you for opt these deposits?

If one has the money it would be more advisable to place them in NRE deposits for 2 reasons. One is that interest rates are far higher on NRE deposits. the country's biggest bank, State Bank of India can offer you interest rates as much as 8 per cent on NRE deposits. Most of the other banks offer you similar competitive interest rates.

Second is that like FCNR (B) deposits, the principal amount and the interest are freely repatriable. NRO deposits are also attractive, but, there are tax implications on them. The interest earned is subject to tax deducted at source. On the other NRE deposits are tax free and there is no TDS.

Read What is the difference between NRE and NRO accounts

Read more about: nris, fcnrb, nro, nre
Story first published: Monday, August 31, 2015, 10:31 [IST]
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