FCNR Deposit vs NRE FD vs Saving Abroad: After Tax and Currency

An FCNR(B) deposit keeps your savings in dollars (or pounds, euros and a few other currencies) at an Indian bank, tax-free in India for an NRI, so you carry no rupee risk. An NRE FD pays more, about 6.3% against 3.5% for three years at SBI today, but you take the rupee's fall on the way out. Over the last ten years the rupee lost about 3% a year against the dollar on RBI's annual averages. At that pace a 3-year NRE FD ends up roughly level with FCNR(B) in dollar terms, and both trail a 3-year US Treasury yielding 4.75%. If you live in the US, all three are taxable there.

The rest of this post shows the maths, the RBI rules and what changes at tax time.

What is an FCNR(B) deposit?

FCNR(B) stands for Foreign Currency (Non-Resident) Account (Banks). It is a fixed deposit that an NRI or PIO holds with an Indian bank in a foreign currency. The rules come from RBI's Master Direction on Deposits and Accounts (para 5) and its interest-rate directions:

• Fixed deposit only. There is no savings or recurring version (para 5.2).
• Currencies: "any permissible currency". In practice SBI quotes USD, GBP, EUR, JPY, CAD and AUD, and HDFC also lists SGD.
• Tenure: 1 to 5 years. RBI's interest-rate rules set five buckets from one year up to five years, and bar banks from accepting deposits longer than five years. The ceiling is reset each month from the previous month's benchmark.
• Rate ceiling: fixed rates can't exceed the overnight alternative reference rate for that currency plus 2.5 percentage points for 1 to under 3 years, or plus 3.5 points for 3 to 5 years.
• Repatriable: credits, debits, loans and joint holding follow NRE rules (para 5.3), so principal and interest can go back abroad freely.

The point of the account is simple: you deposit dollars and get dollars back. The rupee can do whatever it likes in between.

Is FCNR interest tax-free in India?

Yes, for a non-resident. Under the Income-tax Act, 2025, Schedule IV, Sl. No. 14 keeps the exemption that used to sit in section 10(15)(iv)(fa) of the 1961 Act. That clause covers interest paid by a scheduled bank on RBI-approved foreign currency deposits to a non-resident or to someone who is resident but not ordinarily resident (RNOR). So FCNR interest stays tax-free in India even in your RNOR years after moving back.

NRE interest is exempt under Schedule IV, Sl. No. 1, but only while you are a "person resident outside India" under FEMA. Once you return for good, that exemption stops. See NRE vs NRO accounts for how the two rupee accounts differ.

What do banks pay on USD FCNR deposits now?

These are the standard USD rates for amounts below US$1 million. ICICI's page also notes a 12-month lock-in on 3 to 5 year deposits booked between 11 June and 31 August 2026, so older deposits may carry different terms.

Both banks pay no interest if you break the deposit within a year. After a year, there's no penalty, and interest is paid at the original booked rate for the time the money stayed. For comparison, SBI's NRE FD pays 6.25% for 1 to under 2 years and 6.30% for 3 to under 5 years (w.e.f. 15 August 2026).

On the US side, Treasury's daily yields for 23 October 2026 show 4.41% on the 52-week bill (coupon equivalent) and 4.75% on the 3-year note. A US high-yield savings account pays whatever your bank posts that week, so check its current APY rather than relying on a number here.

FCNR vs NRE FD vs keeping money in the US: which comes out ahead?

Comparing headline rates misleads you, because the NRE rate is in rupees and the other two are in dollars. You have to convert the NRE result back at the exchange rate you expect in three years.

Here is an illustrative comparison for US$100,000 over three years. Assumptions:

• Start rate ₹94.60 per US$ (RBI reference rate, 30 June 2026, RBI Handbook Table 223).
• NRE FD at 6.30%, FCNR(B) at 3.50% (SBI 3-year rates) and a 3-year US Treasury at 4.75%, all compounded once a year for simplicity, before any tax.
• The rupee's average fall against the dollar: about 3.0% a year over the ten years to 2025-26 and about 3.5% a year over twenty years, from RBI's financial-year average rates (₹65.47 in 2015-16, ₹44.27 in 2005-06, ₹88.31 in 2025-26).

Three things stand out.

1. The NRE FD only wins if the rupee holds up. It beats FCNR(B) as long as the rupee falls less than about 2.7% a year, and beats the Treasury only below about 1.5% a year. At the long-run average it lands just under FCNR.
2. FCNR(B) removes the guesswork, not the gap. You know your dollar result on day one, but you accept a lower rate for that certainty.
3. Right now US Treasuries pay more than FCNR(B). That can change quickly, since both sides move with US interest rates.

None of this is a recommendation. The rupee has had calm stretches and sharp falls (2025-26 ended at ₹94.65 against an average of ₹88.31), and the right choice depends on what currency you will spend the money in.

Which currency will you spend it in?

This question matters more than the rate table.

• Spending in India soon (a flat, parents' care, moving back): rupee depreciation doesn't hurt you, so the NRE FD's higher rate is the honest comparison.
• Spending abroad (US college fees, a US house): compare in dollars, as in the table above.
• Not sure: splitting by likely use is a reasonable way to think about it. I can't tell you the split, but you can model both legs with the FD and RD calculator and today's rate on the exchange rates page.

What about a one-year horizon?

For a single year the gap is smaller and the currency risk is the same story. SBI's 1-year FCNR(B) rate of 4.50% is roughly level with the 4.41% on a 52-week US Treasury bill, and ICICI's 3.75% is below it. A 1-year NRE FD at 6.25% beats both in dollars only if the rupee falls less than about 1.7% to 1.8% over that year.

How do you open and fund an FCNR(B) deposit?

Any bank authorised by RBI to run these accounts can open one for an NRI or PIO (para 5.1). The funding rules follow the NRE account (para 5.3), which means:

• Inward remittance from abroad in the deposit currency, or converted from another foreign currency.
• Transfers from your NRE or another FCNR(B) account. Moving NRE money into FCNR(B) converts rupees into dollars at the bank's rate.
• Not from NRO. NRO money isn't freely repatriable, so it can't fund a repatriable foreign currency deposit directly; it first has to go through the US$1 million remittance route.

Breaking an NRE FD early to switch into FCNR(B), or the other way round, attracts the bank's premature-withdrawal penalty; RBI's 2016 rules say so explicitly. Time the switch for maturity if you can.

Is FCNR or NRE interest taxed in the US?

Yes. The IRS taxes US citizens and resident aliens on worldwide income from all sources, so interest on an NRE FD, an FCNR(B) deposit and a US Treasury all goes on your US return. India's exemption doesn't change that, and because India deducts no tax on NRE or FCNR interest, there is no Indian tax to claim as a foreign tax credit.

The illustration above is before tax. At an assumed 24% US federal rate on the interest each year, the FCNR deposit grows to about $108,200 and the Treasury to about $111,200; the NRE FD's interest is taxed too. Indian accounts also count towards your FBAR and FATCA reporting, which I cover in FBAR and FATCA for Indian assets. The exact result depends on your full US situation, including state tax.

Other countries have their own rules on foreign interest. Check yours before assuming "tax-free in India" means tax-free everywhere.

Quick comparison table

If you want a rupee deposit that builds monthly, an NRE recurring deposit is possible. FCNR(B) has no RD option.

Common mistakes

• Comparing 6.3% with 3.5% directly. One is a rupee rate and one a dollar rate. Convert first.
• Assuming tax-free in India means tax-free. A US, UK or Canadian resident pays tax at home on this interest.
• Breaking a deposit in the first year. Both SBI and ICICI pay no FCNR interest before 12 months.
• Forgetting conversion costs. Moving dollars into an NRE FD and back means two currency conversions; ask your bank for its spread.
• Using one year of rupee history. The rupee's path varies a lot. Use long averages and a bad-case scenario, as above.

More NRI banking and tax guides are on the NRI hub.