All Non-Resident Indians or NRIs aim to search for a safe investment avenue to put away their foreign currency earnings. FCNR Accounts help you invest your foreign currency earnings at the current forex rate without fluctuations upon maturity. Are you allowed to break them before they mature? What penalties do banks charge you?
The FCNR Deposit lets you deposit the earnings in a foreign currency and safeguard them from fluctuations. You can withdraw the deposit prematurely if the situation forces you. The penalties and rules for withdrawals before maturity rely on the period you opt for the same while it is active.
Rules
The Foreign Current Non-Resident Account allows you to deposit your earnings in foreign currencies for a fixed tenure and receive attractive interest. The money you invest in the FCNR Fixed Deposits offers you interest income which is tax-free in India. You must follow these investment rules to obtain your goals:
Withdrawal within a year
Like other NRI Accounts, you can withdraw the FD by paying a penalty for premature withdrawals. The amount differs from one bank to another. Mostly, the bank does not pay you any interest if you withdraw within a year. You must forfeit the interest earned on the FD during that period. Also, you may compound the FD interest every six months but receive the interest income at the end of one investment year.
Withdrawal after a year
Banks usually do not charge a penalty for any premature FCNR withdrawals if you do so after investing for one year. You receive the interest income for the duration you stay invested. The bank pays you the base rate for the original tenure associated with the deposit.
No conversions
FCNR is a foreign currency deposit where you maintain money in the deposit currency without converting the funds to INR. You can maintain it in any RBI-approved currency. The interest offered depends on the currency in which you maintain the deposit. On the other hand, rupee-denominated accounts like Non-Resident External (NRE) and Non-Resident Ordinary (NRO) Accounts allow you to withdraw funds only in the Indian currency or INR.
Residency status
You can hold the FCNR FD until maturity and earn the predetermined interest rate despite changing your citizenship status to Resident Indian during the deposit term. You can freely repatriate the entire FD amount, including the principal and interest amount, to India or your country of residence.
Loan facilities
You can also apply for Loans against the deposit amount and repay them from your maturity proceeds. You can open the FCNR Deposit Account jointly with another Non-Resident Indian and break it prematurely.
Conclusion
While the FCNR Fixed Deposit is an ideal investment option, you are locking your foreign currency away. If you are sure you will not need the money to support your life overseas, this can prove to be a lucrative investment.
