RBI sweetens FCNR deposits: NRIs can now earn up to 7% on dollar savings

Non-resident Indians (NRIs) can now look homeward to park their dollar savings. The Reserve Bank of India (RBI), in its June monetary policy review, announced it would bear the entire foreign exchange hedging cost on fresh Foreign Currency Non-Resident (Banks) deposits of 3-5 year tenors mobilised till 30 September 2026. On 17 June, the central bank also lifted the ceiling on interest rates banks can offer on these deposits.

The result is that major banks are now offering 6% on dollar deposits, with some smaller banks going up to 7.1%. Meanwhile, on 18 June, Equitas SFB hiked rates on FCNR (B) deposits for US dollars to 7.13% per annum for 3-5 years tenure. Against a US Treasury yield of 4-4.2%, that is a 2-3 percentage point arbitrage, in dollars, with no currency risk on the investor’s side, and no tax liability in India.This is more aggressive than the RBI’s 2013 move, which capped hedging costs at 3.5% but still raised $34 billion.

How the scheme works

FCNR (B) is a fixed deposit that NRIs maintain in India in a foreign currency of their choice. It is offered in five currencies: US dollar (USD), British pound (GBP), Singapore Dollar (SGD), Canadian Dollar (CAD) and Australian Dollar (AUD). Unlike an Non-Resident External (NRE) fixed deposit, which converts your dollars or dirhams into rupees at the prevailing rate, FCNR(B) keeps your money in the original currency throughout the tenure. At maturity, you get back principal and interest in the same currency. There is no rupee exposure.


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Both the deposit and the interest are tax-free in India, and funds are fully repatriable. The scheme is open to NRIs, Overseas Citizens of India (OCIs), and Persons of Indian Origin (PIOs). The window runs until 30 September 2026, for fresh deposits with a 3-5 year tenor. These deposits are also exempt from cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements, which makes them structurally attractive for banks to mobilise. The rate shift has been significant. Earlier, FCNR rates were hovering around 3.5-4%.

NRE FD or FCNR?

Both NRE fixed deposits and FCNR (B) deposits are tax-free in India and fully repatriable. The real difference is currency. An NRE FD is denominated in rupees. You take on depreciation risk, and the math hasn’t worked in the past. Since 1991, the rupee has depreciated 4-4.5% annually against the dollar. An NRI who parked money in an NRE FD at 7% a year ago has effectively made 2-2.5% in real dollar terms, with currency erosion happening.

FCNR(B) removes that risk entirely. Kalpesh Ashar, Founder of Full Circle Financial Planners and Advisors, says: “For anyone who wants to hedge their dollar holdings, FCNR is inarguably a much better option than a rupee deposit right now, because the currency hedge is completely covered.”

That said, advisers are not recommending breaking existing NRE FDs. Premature withdrawal attracts penalties, and switching would mean booking a currency loss. The better approach, as Rakesh Patil, Founder of Journie, a wealth management and corporate treasury platform, frames it, is to redirect fresh allocations. “Allocate money sitting in US certificates of deposit, Treasury bills, or UAE fixed deposits. That is where the comparison is live and the arbitrage matters,” he says.

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On portfolio allocation, Ashar suggests a tilt toward FCNR for NRIs planning to return to India within three to five years, roughly 60% in FCNR and 40% in NRE FDs. For those with 15-20 years left abroad, Patil recommends allocating 10-15% of the fixedincome portfolio to FCNR deposits under this window. For those nearing retirement, he suggests 20-30%.

Winners by geography

Not all NRIs benefit equally. The tax structure of your country of residence changes the calculus significantly.

Gulf-based NRIs, in the UAE, Saudi Arabia, Qatar, Kuwait, Bahrain, Oman, are in the most favourable position. Most Gulf countries do not levy personal income tax on interest, and Gulf-based investors are not subject to US-specific reporting requirements like FBAR (Report of Foreign Bank and Financial Accounts) and FATCA (Foreign Account Tax Compliance Act), says Adhil Shetty, CEO of BankBazaar. A 6% rate in dollars, tax-free everywhere, is the equivalent of roughly a 9% pre-tax return, as Patil notes.

“A lot of conservative investors who don’t want to invest the money in markets right now, because they think markets are high, might find this route attractive,” says Karan Dewan, Senior Executive and Principal Representative at XSpot Wealth- EU (Dubai International Financial Centre Representative Office).

For US-based NRIs, the picture is more layered. The Internal Revenue Service (IRS) taxes interest on foreign deposits as ordinary worldwide income, so the net return narrows. But the arbitrage over US Treasuries, still 2 percentage points or more, largely survives even after tax, because the same tax treatment applies to Treasuries. Patil also makes an interesting observation: US-based tech workers who are thinking of vesting Employee Stock Option Plans (ESOPs) or Restricted Stock Units (RSUs) may find FCNR deposits an attractive dollar-safe alternative for a portion of those proceeds.

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UK-based NRIs face a high-tax environment similar to the US, where interest is added to taxable income. Singapore-based NRIs, like their Gulf counterparts, are in a sweet spot: Singapore levies no capital gains tax and no tax on debt instrument returns, making the full 6-7% available to keep. Shetty notes that while tax treatment is a significant factor, currency requirements, liquidity needs, and long-term goals should be weighed in.

Details matter

Investors should note the constraints. There is a one-year lock-in, and premature withdrawal requires breaking the entire deposit, with a penalty. Second, bank credit risk matters: small finance banks offering 7.1% are doing so partly because they need to price in their own risk. Large banks at 6% carry a different risk profile. Third, OCI and PIO investors may face documentation friction, especially if they are new customers at an Indian bank. Video-KYC has simplified the process, but new-to-bank customers should allow time before the September deadline.

A common misconception flagged by Scripbox’s Chief Client Officer Ashok Kumar E.R.: NRIs who have returned to India and hold RNOR (Resident but Not Ordinarily Resident) status cannot open new FCNR deposits. Under FEMA, they are treated as residents for new account-opening purposes, even if their IT Act residency status is different. Existing deposits can continue until maturity, but fresh deposits are not available to this group. And despite Indian tax-exemption, home-country tax applies. Indian exemption does not override the IRS, HMRC, or any other tax authority in the investor’s country of residence.

Real estate rethink

Kalpesh Ashar makes a sharper observation. In his two decades of advising NRI clients, he says most of those who invested in Indian real estate did not have a happy story to tell. Poor returns, illiquidity, exchange rate drag made it a losing proposition, he says. A deposit at 6-7% in dollars, with zero currency risk, provides a compelling alternative rather than parking spare money in a property back home. This window may quietly redirect some flows away from real estate toward financial assets.

A small window

The 30 September 2026 deadline is real, and so is the reinvestment risk after it. Once this window closes, banks will almost certainly not be able to sustain these rates without the RBI bearing the hedging cost.

As Ashar points out, “RBI has given a short timeline for such deposits. The smart play is to act on fresh allocations now, without dismantling existing portfolios.”

For NRIs weighing their options, the message from advisers is consistent: the math has not looked this good for dollar deposits in India in many years. The currency hedge is fully covered, the rates beat most global alternatives on a pre-tax basis, and the Indian tax exemption holds. For Gulf-based investors especially, this may be one of the cleaner fixed-income opportunities available right now. Go in with clear eyes on the lock-in, the bank you choose, and what your home country’s tax authority allows, and the case is hard to argue against.