An FCNR deposit is a fixed deposit that a non-resident Indian (NRI) holds at an Indian bank in a foreign currency, usually US dollars. Dollars go in and dollars come out, so the rupee's exchange rate does not touch the balance. The interest is exempt from tax in India, but a US taxpayer still owes US tax on it and has to report the account.
What an FCNR deposit is and who it suits
FCNR stands for Foreign Currency Non-Resident. Bank rate cards show it as FCNR(B), where the B stands for Bank. People often say "FCNR account", but it is a term deposit and not a savings account. The minimum tenor is one year, and the rate boards in our articles run to five years.
Only money earned outside India, such as a US paycheck, can go into it. The choice is then between a rupee NRE account and an FCNR deposit, and it turns on where you will spend the money. If you will spend it in India, use NRE. If you will spend it in dollars, for example on US retirement or a US down payment, use FCNR. In the words of our account comparison, "You give up some headline yield for a known dollar number on day one." The full decision is in NRE vs NRO vs FCNR.
How FCNR interest works, and FCNR deposit rates in May 2026
FCNR interest accrues on a 360-day year, where the US convention is 365 days, and the bank pays it every 180 days. The 360-day basis adds about 6 basis points to the stated rate (a basis point is one hundredth of a percentage point). A stated 5.00% therefore works out to an actual annual yield of 5.06%.
Rates differ a good deal by bank. In our eight-bank survey, as of May 15, 2026, 1-year FCNR (USD) rates ran from 3.65% at HDFC to 5.00% at Union Bank of India. The gap between top and bottom was 135 basis points, which is $1,350 a year on a $100,000 deposit. The whole table is in FCNR (USD) deposit rates.
The same article says closing a deposit before one year usually means you forfeit the accrued interest.
The 2026 rate change
On June 8, 2026, the Reserve Bank of India (RBI) opened a dollar-rupee swap facility for banks raising fresh FCNR(B) deposits. A bank that takes dollars and lends rupees has to hedge the currency risk, and that hedge costs about 3 to 3.5 percentage points. The RBI agreed to bear that cost on three-to-five-year deposits booked between June 8 and September 30, 2026.
Banks repriced within 48 hours. As of June 11, 2026, SBI, HDFC Bank, ICICI Bank, Axis Bank and Bank of Baroda paid a peak of 6% on three-to-five-year dollar deposits. Kotak Mahindra paid 6.15% above $1 million and AU Small Finance Bank paid 7.10%. Six weeks earlier, comparable deposits paid roughly 3.5%.
The rate is fixed at booking for the full term. The article said pricing on new deposits would revert to the unsubsidized level once the window closed. That date has passed, so confirm the live rate with the bank. The background is in FCNR(B) rates at 6% to 7.1%.
FCNR against keeping the dollars in the US
In June 2026 our comparison put FCNR(B) at 6.0% to 7.1%, a US high-yield savings account at 3.0% to 4.5%, a US certificate of deposit (CD) at 3.7% to 4.25% and a Treasury at 3.7% to 4.55%, all before US tax. On yield alone the deposit led by 150 to 300 basis points.
The price of that lead is liquidity and deposit insurance. FDIC cover in the US is $250,000 per depositor, per bank, per ownership category, and you can multiply it by spreading money across banks. India's DICGC covers ₹5 lakh, roughly $5,300, per bank. A large deposit at any one Indian bank is almost entirely uninsured.
The article's answer is a split. Keep the emergency reserve in a US high-yield account, and term out only the dollars you are unlikely to need for three to five years. See FCNR(B) vs HYSA, CDs and Treasuries.
US tax and reporting on an FCNR deposit
The IRS taxes worldwide income. FCNR interest is ordinary income on your US return in the year it accrues. India levies no tax on it, so there is no foreign tax credit to set against the US bill.
Our July 2026 article worked out what a US filer keeps from a 6% deposit with no borrowing:
| Saver | Gross | New Jersey net | Florida net |
|---|---|---|---|
| $100,000 | 6.00% | 4.18% | 4.56% |
| $1 million | 6.00% | 3.47% | 3.85% |
The $100,000 saver is modeled at the 24% federal bracket. The $1 million saver is modeled at 32% federal plus the 3.8% Net Investment Income Tax. New Jersey adds 6.37% and Florida adds nothing. Illustration, not tax advice.
Treasury bills and I Bonds are exempt from state tax, which narrows the gap in a high-tax state. For the $1 million New Jersey filer, FCNR at 6.5% kept 3.76% against 2.73% for an I Bond at 4.26%, using July 2026 benchmarks. Every row is in FCNR deposit after US tax.
An FCNR deposit is also a foreign financial account. If the combined maximum value of your foreign accounts passes $10,000 at any point in the year, you file the FBAR (FinCEN Form 114). Form 8938 applies to a single filer living in the US at $50,000 of foreign assets at year end, or $100,000 for a married couple filing jointly (2025 tax-year thresholds). The FBAR calculator adds up your accounts.
Leveraged FCNR: why the headline figure is not the return
In a leveraged FCNR deposit, a bank lends you a multiple of your own money against the deposit, and the loan funds a larger deposit. The multiples in our articles run from 7 to 12 times, and one bank's GIFT City unit offered up to 19. The advertised 13.8%, 15% or "17% to 27%" is a thin gap between the deposit rate and the loan rate, multiplied by the leverage. It is a pre-tax figure. It is also a personal loan secured by your deposits.
The US tax treatment decides the result, and our three articles do not treat it the same way. The June 2026 article, why 17% to 27% is not your return, says the full gross deposit interest is taxable. On $100,000 at 7 times leverage, a 17% pre-tax gain became 9.0% if the loan interest was deductible and a 7.5% loss if it was not. The July 2026 article, what the 13.8% posters leave out, takes net reporting as its base case where the loan traces to the deposit: about 10% in New Jersey and 11% in Florida, against losses of 4.9% and 1.6% if the filer is taxed on the gross. The latest, on the 15% deposit through GIFT City, says net reporting is "a defensible position" but "not settled". Treat the point as open. The FBAR and Form 8938 are measured on the full leveraged deposit.
What happens to an FCNR deposit when you move back to India
NRE, NRO and FCNR all assume you stay an NRI. Once you move back for good, the FCNR deposit runs to maturity, and at maturity you choose whether the balance becomes resident rupees, a resident-currency fixed deposit, or an RFC account.
RFC stands for Resident Foreign Currency. It holds dollars without forcing a conversion to rupees. RFC interest is exempt from Indian tax while you are RNOR (Resident but Not Ordinarily Resident), typically 2 to 3 years after return. After that, tax applies at slab rates. The RNOR calculator estimates your window.
Common questions
Is FCNR interest tax-free?
It is exempt in India for NRIs. It is taxable in the US as ordinary interest income.
Can you withdraw an FCNR deposit early?
Not cheaply. Under the 2026 scheme, our July article says no withdrawal is allowed in the first year. After that you drop to the rate for the time completed, and banks commonly take a further 1% a year.
Is an FCNR deposit safe?
There is no currency risk for a dollar saver. The risk is the bank, because DICGC insurance stops at ₹5 lakh, roughly $5,300, per bank.
Playbook Move: Decide how many dollars you can leave untouched for the full term, and keep your emergency reserve in the US. Compare banks, then work out the rate after federal and state tax and plan the FBAR filing before you book. If a bank offers leverage, ask a cross-border tax professional how the deposit interest and the loan interest will be reported before you sign.
Drawn from Editions 2, 3, 7, 9 and 10 of the NRI Playbook newsletter. Figures are as of the dates shown. For informational purposes only; not financial, tax, or legal advice. For decisions about your specific situation, consult a qualified cross-border tax professional.