FCNR FD vs NRE FD: Where can NRIs, OCIs earn more?
Non-resident Indians (NRIs) and Overseas Citizens of India (OCIs) can invest in Foreign Currency Non-Resident- FCNR(B)-and Non-Resident External Account (NRE) products such as fixed deposit (FD) to generate a stable income from India. Both FCNR(B) and NRE FDs offer varied interest rates for different tenures, are tax-exempt and fully repatriable with no Reserve Bank of India (RBI) limit. Yet, they are different in many aspects.
In an FCNR (B) FD, an NRI can invest in a foreign currency such as US dollar and British Pound; in an NRE FD, investments are made in the Indian rupee. Compounding in an FCNR(B) FD is half-yearly, while in an NRE FD, it is quarterly.
Investment in an FCNR(B) FD provides protection against currency depreciation, while an NRE FD doesn’t provide any such protection.
But which fixed deposit can help you produce higher return on a similar investment- FCNR(B) or NRE? Through expert calculations, ET Wealth Online shows the return an NRI may get on a $50,000 FD investment in FCNR(B) and Rs 47 lakh (equal to $50,000 at $1=Rs 94) investment in an NRE FD at a 7% interest rate in each. The calculations show interest earned, US$ and INR value, currency risk and post-tax returns.
FCNR(B) vs NRE fixed deposit: Where does $50,000 investment can help NRIs earn more?
FCNR(B) vs NRE FD: Return comparison at 7% interest rate
Tanvi Kanchan, associate director, Anand Rathi Shares & Stock Brokers, presents a calculation where both products offer the interest rate of 7% p.a. The table below shows returns over five years before factoring in currency movement.
Factoring in currency risk
The FCNR(B) deposit carries zero currency risk from the investor's perspective. The client places $50,000, the bank holds those dollars, and at maturity the client receives $70,530 regardless of where the rupee has moved.
The NRE FD, by contrast, converts the dollar into rupees on Day One and reconverts at maturity, and the end dollar value is entirely a function of the USD/INR rate five years hence.
Over the past decade, the rupee has depreciated at a compounded rate of approximately 3% per year against the dollar.
However, if the value of the USD against INR stays the same or if it decreases, an NRE investor can get higher returns compared to
an FCNR(B) investor on the same investment. But if the value of the USD depreciates, the FCNR(B) depositor can have an edge.
Factoring in taxation
Returns from FCNR(B) and NRE are exempt in India, but NRI investors may need to pay tax on such an income in the country of their
residence. The final return can depend on how that amount will be taxed in that particular country.
FCNR (B) vs NRE: Which is better for NRIs and OCIs?s
Ankit Bagadia, director, business, BankBazaar, told ET Wealth that it may depend on how NRIs want to use returns, volatility
and currency movements.
Bagadia explains who should invest in FCNR(B) and NRE schemes.
When is an FCNR(B) fixed deposit can be a better option for NRIs?
FCNR(B) deposits are generally better suited for NRIs who want to retain exposure to a foreign currency and avoid currency conversion risk. Since both the principal and interest remain denominated in the chosen foreign currency throughout the tenure, the depositor is protected from rupee depreciation.
FCNR(B) deposits can be particularly relevant for NRIs who expect to use the funds overseas in the future or prefer certainty around the value of their investment in foreign currency terms.
They are also attractive during periods of heightened currency volatility when preserving foreign currency value becomes
an important consideration.
When is an NRE fixed deposit a better option?
An NRE fixed deposit may be more suitable for NRIs who have a positive outlook on the Indian economy and the rupee over
the long term, or who expect to use the funds in India eventually. NRE FDs are denominated in rupees and typically offer higher nominal interest rates than FCNR(B) deposits.
However, the eventual return for an NRI also depends on currency movements. If the rupee remains stable or appreciates
against the depositor's home currency, NRE FDs can potentially generate higher overall returns. They may also be preferred by NRIs who have regular financial commitments in India and are comfortable taking on some currency exposure.
Which can be a suitable option for NRIs planning to return to India?
For NRIs planning to return to India in the near to medium term, NRE fixed deposits may often be more relevant because
In an FCNR (B) FD, an NRI can invest in a foreign currency such as US dollar and British Pound; in an NRE FD, investments are made in the Indian rupee. Compounding in an FCNR(B) FD is half-yearly, while in an NRE FD, it is quarterly.
Investment in an FCNR(B) FD provides protection against currency depreciation, while an NRE FD doesn’t provide any such protection.
But which fixed deposit can help you produce higher return on a similar investment- FCNR(B) or NRE? Through expert calculations, ET Wealth Online shows the return an NRI may get on a $50,000 FD investment in FCNR(B) and Rs 47 lakh (equal to $50,000 at $1=Rs 94) investment in an NRE FD at a 7% interest rate in each. The calculations show interest earned, US$ and INR value, currency risk and post-tax returns.
FCNR(B) vs NRE fixed deposit: Where does $50,000 investment can help NRIs earn more?
FCNR(B) vs NRE FD: Return comparison at 7% interest rate
Tanvi Kanchan, associate director, Anand Rathi Shares & Stock Brokers, presents a calculation where both products offer the interest rate of 7% p.a. The table below shows returns over five years before factoring in currency movement.
Factoring in currency risk
The FCNR(B) deposit carries zero currency risk from the investor's perspective. The client places $50,000, the bank holds those dollars, and at maturity the client receives $70,530 regardless of where the rupee has moved.
The NRE FD, by contrast, converts the dollar into rupees on Day One and reconverts at maturity, and the end dollar value is entirely a function of the USD/INR rate five years hence.
Over the past decade, the rupee has depreciated at a compounded rate of approximately 3% per year against the dollar.
However, if the value of the USD against INR stays the same or if it decreases, an NRE investor can get higher returns compared to
an FCNR(B) investor on the same investment. But if the value of the USD depreciates, the FCNR(B) depositor can have an edge.
Factoring in taxation
Returns from FCNR(B) and NRE are exempt in India, but NRI investors may need to pay tax on such an income in the country of their
residence. The final return can depend on how that amount will be taxed in that particular country.
FCNR (B) vs NRE: Which is better for NRIs and OCIs?s
Ankit Bagadia, director, business, BankBazaar, told ET Wealth that it may depend on how NRIs want to use returns, volatility
Bagadia explains who should invest in FCNR(B) and NRE schemes.
When is an FCNR(B) fixed deposit can be a better option for NRIs?
FCNR(B) deposits are generally better suited for NRIs who want to retain exposure to a foreign currency and avoid currency conversion risk. Since both the principal and interest remain denominated in the chosen foreign currency throughout the tenure, the depositor is protected from rupee depreciation.
FCNR(B) deposits can be particularly relevant for NRIs who expect to use the funds overseas in the future or prefer certainty around the value of their investment in foreign currency terms.
They are also attractive during periods of heightened currency volatility when preserving foreign currency value becomes
an important consideration.
When is an NRE fixed deposit a better option?
An NRE fixed deposit may be more suitable for NRIs who have a positive outlook on the Indian economy and the rupee over
the long term, or who expect to use the funds in India eventually. NRE FDs are denominated in rupees and typically offer higher nominal interest rates than FCNR(B) deposits.
However, the eventual return for an NRI also depends on currency movements. If the rupee remains stable or appreciates
Which can be a suitable option for NRIs planning to return to India?
For NRIs planning to return to India in the near to medium term, NRE fixed deposits may often be more relevant because
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