For an overview of FCNR deposits, see FCNR deposit: rates, US tax and how it works.
In July 2026, Indian banks were advertising 6% and 6.5% on FCNR(B) deposits, the fixed-term deposits a non-resident Indian holds in dollars at an Indian bank. (If you are still choosing an account type, start with NRE, NRO or FCNR.) Each of those numbers is real and pre-tax, and each is calculated for someone who does not file a U.S. return.
This post runs the one calculation the posters leave out. It shows what a U.S. taxpayer in New Jersey and one in Florida keep, on $100,000 and on $1 million, at a 6% and a 6.5% rate, with no leverage (no borrowing against the deposit).
Unleveraged FCNR, after U.S. tax, and why your state is on the team sheet
Start with the version worth doing. You deposit your own dollars, take no leverage, carry no currency risk, and collect the subsidized rate. The table shows what a U.S. filer keeps. The interest is ordinary income. The only difference between the two states is that Florida has no state income tax and New Jersey does.
| Saver · Rate | Gross | NJ net | FL net |
|---|---|---|---|
| $100k · 6.0% | 6.00% | 4.18% | 4.56% |
| $100k · 6.5% | 6.50% | 4.53% | 4.94% |
| $1M · 6.0% | 6.00% | 3.47% | 3.85% |
| $1M · 6.5% | 6.50% | 3.76% | 4.17% |
After-tax return on equity. The $100,000 saver is modeled at the 24% federal bracket, and the $1 million saver at 32% federal + 3.8% NIIT (the Net Investment Income Tax). NJ adds 6.37% state tax for both savers (the bracket for income below $500,000 for a married couple filing jointly, MFJ). FL adds none. Illustration, not tax advice.
Two things stand out. First, the 6% headline comes to roughly 4.5% for a $100,000 Florida saver and about 3.5% for a $1 million New Jersey saver. The U.S. tax takes from a quarter to 40% of the coupon, and India's exemption provides no offsetting credit.
Second, the state you file in changes the result meaningfully. The same $1 million deposit at 6.5% keeps 4.17% in Florida versus 3.76% in New Jersey. Where you live is on the team sheet whether you picked it or not.
Yellow card: know the lock-in
The subsidized rate applies only to three-year and five-year terms, and you earn it by staying to maturity. There is a mandatory one-year lock-in during which no withdrawal is allowed at all.
Break the deposit after that, and the penalty is steep. You drop to the rate for the tenure you completed. Banks then apply an additional penalty, commonly 1% less interest per year held, and higher at some banks. Premature withdrawal can wipe out much of the yield advantage that made the deposit worth doing.
The rule that follows is to term out only dollars you can leave untouched for the full three or five years. Treat this money as committed capital.
Playbook Move: For most readers this was the whole game, an unleveraged FCNR deposit, booked before September 30, 2026, on dollars you will not need for the full three or five years. Even after tax it beats a U.S. high-yield account or Treasury for a saver whose after-tax alternative sits lower, but run your own bracket and state first. The gross rate is the same for everyone. The number you keep is not.
FCNR against the dollar alternatives, all after U.S. tax
The comparison that matters is between the FCNR deposit and the dollar instruments a U.S. investor already holds, once each is taxed correctly. One distinction decides it. FCNR interest and bank CD interest are taxed at both the federal and state level, while Treasury bills and U.S. savings bonds (I Bonds) are exempt from state tax. That exemption closes much of the gap for anyone in a high-tax state.
| Instrument (after tax) | $100k US, NJ | $100k US, FL | $1M US, NJ | $1M US, FL | Dubai, non-US |
|---|---|---|---|---|---|
| FCNR 6.5% (state-taxed) | 4.53% | 4.94% | 3.76% | 4.17% | 6.50% |
| FCNR 6.0% (state-taxed) | 4.18% | 4.56% | 3.47% | 3.85% | 6.00% |
| 3-Yr CD 4.25% (state-taxed) | 2.96% | 3.23% | 2.46% | 2.73% | 4.25% |
| I Bond 4.26% (state-exempt) | 3.24% | 3.24% | 2.73% | 2.73% | n/a |
| T-Bill 3.75% (state-exempt) | 2.85% | 2.85% | 2.41% | 2.41% | 3.75% |
After-tax yield on an unleveraged holding. The $100,000 saver is at the 24% federal bracket, and the $1 million saver at 32% federal plus 3.8% NIIT. New Jersey adds state tax on FCNR and CD interest (6.37% for both savers, the bracket for income below $500,000 MFJ). Treasury and I Bond interest is state-exempt in both states. The Dubai column is a non-US person resident in the UAE. FCNR interest is India-exempt for NRIs, UAE has no income tax, and US bank-deposit and Treasury interest are exempt from US tax for a nonresident alien not engaged in US business, so the gross rate is retained. I Bonds require US registration and are generally unavailable to a non-US person (shown as n/a). Benchmarks as of July 2026 are a 3-year CD top rate of 4.25% APY (typical online 4.00% to 4.15%, national average 1.67%), an I Bond composite of 4.26% and a Treasury bill at approximately 3.75%. I Bonds are limited to $10,000 per person per year. Illustration, not tax advice.
FCNR posts the highest after-tax yield in every column. The margin is thinner than the headline rates suggest, and it shrinks where the investor is taxed hardest.
For a $1 million New Jersey filer, FCNR at 6.5% keeps 3.76% against 2.73% for a state-exempt I Bond. That is an edge of about 100 basis points (one percentage point). In return, the filer locks dollars in a foreign bank for three to five years, with a lock-in and repatriation steps an I Bond does not carry.
The 3-year CD, for all its competitive 4.25% headline, trails the I Bond for that filer after state tax. For a Florida investor, FCNR's lead is wider still. The deposit is sound. The size of its edge depends on the investor's bracket and state.
The paperwork the deposit triggers before you file
An FCNR deposit is a foreign financial account, and it can trigger two separate U.S. filings that have nothing to do with whether you owe tax. The first is the FBAR, the foreign bank account report filed as FinCEN Form 114. The second is Form 8938, the foreign asset statement required under FATCA, the Foreign Account Tax Compliance Act.
Both are informational, and they run on different thresholds. A large leveraged deposit clears both at once, on the gross deposit amount and not on your equity. Miss them and the penalties are far larger than any yield.
| FBAR (FinCEN 114) | FATCA (Form 8938) | |
|---|---|---|
| What it reports | Foreign accounts | Foreign assets |
| Threshold, in U.S. (single / MFJ) | $10,000, any account | $50k / $100k, year-end |
| Threshold, abroad (single / MFJ) | $10,000, same | $200k / $400k, year-end |
| Reported on the | Gross deposit | Gross deposit |
| Filed with | FinCEN (separate) | Form 1040 |
| Penalty to skip | $10k+ non-willful | $10k+ |
2025 tax-year thresholds (filed 2026), unchanged from prior years. FATCA figures are shown single / married-filing-jointly. The "abroad" thresholds apply to filers who meet the physical-presence test. FBAR uses the aggregate maximum value across all foreign accounts during the year, and a value crossed at any point counts. FATCA year-end figures also carry a higher any-time-during-year test ($75,000 US single, $300,000 abroad single). The two are separate filings, and filing one does not satisfy the other. Illustration, not tax advice.
For this trade, almost any FCNR deposit clears the $10,000 FBAR line, so plan on filing FinCEN 114. A U.S.-resident single filer also clears FATCA's $50,000 year-end line at six figures of deposit, so Form 8938 likely applies too.
A leveraged position reports on the full deposit. An $8 million leveraged deposit is an $8 million line on both forms, not the $1 million you put in. Build the filing into the plan before you book. Our FBAR calculator works out the aggregate maximum across your accounts, and this post covers the two thresholds in more detail.
The result for a U.S. taxpayer
For a U.S. taxpayer, the unleveraged FCNR deposit gives a fair, clean result. It pays a real rate on dollars, and your bracket and your state set the number you keep. Book the deposit if it clears your own after-tax hurdle.
If you want that hurdle worked out on your own return before you commit dollars for three or five years, a cross-border tax consult is the place to do it.
From Edition 9 of the NRI Playbook newsletter. For informational purposes only; not financial, tax, or legal advice. For decisions about your specific situation, consult a qualified cross-border tax professional.