For an overview of FCNR deposits, see FCNR deposit: rates, US tax and how it works.
Most NRIs ignore FCNR (USD) deposits. At 5.00% on 1-year USD deposits (Union Bank of India), FCNR beats most US money-market funds after-tax. It carries zero rupee-conversion risk and is fully repatriable, meaning you can move principal and interest back to the US.
The 135 bps spread across banks (135 basis points, or 1.35 percentage points) is the widest in our survey. It is worth $1,350 per year on a $100,000 deposit, every year.
5.06%: the top 1-year FCNR (USD) yield in our 8-bank survey
That is the dollar-denominated yield on a 1-year FCNR (USD) deposit at an Indian bank, with full repatriability. The bank is Union Bank of India. The 5.00% you see on the rate card is the stated rate.
FCNR interest is calculated on a 360-day year and paid semi-annually, so the actual annual yield works out to 5.06%. The pickup is small, and it compounds over multi-year tenors (the mechanics are explained below).
For context, the best US 1-year CDs at major banks were in the 4.25% to 4.50% range in mid-May 2026, and a 1-year Treasury yielded roughly 4.30%. The FCNR yield sat above both, and the interest is exempt from Indian income tax for NRIs.
Most NRIs miss that FCNR rates are quoted in USD and funded with USD. There is no conversion in or out, and no rupee depreciation risk. You are earning an India-bank rate on a US-currency balance. The deposit itself sits in an Indian bank, but your principal and interest are denominated and repatriated in dollars.
FCNR (USD) deposits: the underused dollar hedge
FCNR is the one account where the math favors the NRI. It is a USD-denominated FD held at an Indian bank, with interest paid in USD, full repatriability and no Indian tax on interest.
The 1-year rates at the eight banks we surveyed, as of May 15, 2026:
| Bank | 1-year FCNR (USD) |
|---|---|
| SBI | 4.40% |
| HDFC | 3.65% |
| ICICI | 3.85% |
| Axis | 4.00% |
| Kotak | 4.40% |
| IDFC | 4.50% |
| DBS | 3.75% |
| Union Bank of India | 5.00% |
1-year, 1-day+ tenor. USD-denominated. Rates as of May 15, 2026. The NRE, NRO and RFC columns of the same survey are in the full 8-bank comparison.
FCNR 1-year rates in the table run from 3.65% (HDFC) at the bottom to 5.00% (Union Bank of India) at the top. The 135 bps gap is wider than any other column.
On a $100,000 deposit held for one year, choosing Union Bank over HDFC is $1,350 of additional interest. Held over a 5-year tenor with semi-annual compounding on a 360-day basis (explained below), the difference compounds to roughly $8,200.
The RBI caps what banks can offer on FCNR (B) deposits. For 1-to-3-year tenors, the ceiling is the Overnight ARR (the overnight benchmark rate) for each currency plus 250 bps. For 3-to-5-year tenors, the ceiling is ARR plus 350 bps. Banks rarely pay to the ceiling, and the spread to ceiling is their margin.
The 135 bps gap between Union Bank and HDFC in our survey reflects that bank-by-bank pricing choice, not differences in underlying funding costs. FCNR is a smaller deposit pool than NRE, and the banks competing for it tend to price more aggressively than on the rupee side.
A few things to understand:
- Interest is tax-free in India (Section 10(15)(iv)(fa)). It is not tax-free in the US, and you will report it on your 1040 as ordinary interest income. There is no double tax, but the IRS still taxes it.
- Minimum tenor is 1 year, and premature withdrawal usually means forfeiting all accrued interest. This is not money you'll need in 6 months.
- Currency match means zero conversion risk for a US-based NRI. Your principal goes in as dollars, sits as dollars and comes out as dollars. The rupee can drop to 110 or rise to 80, and your FCNR balance is unaffected.
- Interest is calculated with two quirks. FCNR interest accrues on a 360-day year basis (not the 365-day US convention) and is paid every 180 days. The 360-day basis adds about 6 bps of effective yield on top of the stated rate, and semi-annual compounding adds more over multi-year tenors. A 5% stated rate on a 5-year FCNR delivers roughly 28% total return vs. 25% on simple-interest 365-day math. That 300 bp pickup does not appear on the rate card.
FCNR is not a liquid account. For the dollars you do not need for 12 months or more, it is the most rupee-risk-free, tax-efficient option an NRI can use in India.
Playbook Move: If you have dollars you do not need to access for 12 months or longer, FCNR was the strongest option for an NRI considering India as of mid-May 2026. The rate was higher than most US high-yield savings accounts and comparable to short-term Treasuries. The deposit sits at a major Indian bank such as SBI, HDFC, or ICICI, which carry lower default risk than most US regional banks.
Why the currency match matters: the rupee at 95.97
In the 2026 IPL season, a target of 200 was no longer a defendable score. Batters were chasing it down inside 18 overs with wickets to spare. The Rupee, watching from the boundary, seemed to have decided it wanted a piece of the action, and was accelerating toward a century of its own. At 95.97 against the dollar, it was four runs short. The crowd was not cheering this one.
At the close on Friday, May 15, 2026, a dollar bought you ₹95.97, an all-time low for the rupee at that date (52-week range: 85.59 to 95.97). A week earlier it bought ₹94.43. The rupee lost 1.63% against the dollar in seven days, and 12.13% over 12 months. We wrote two weeks earlier about the "quiet slide" at 94.91. The slide has since accelerated.
Three forces are pulling it down at once, and none of them are easing. Crude is the most visible. Brent was above $100 for most of April and May 2026, and every $10 increase in oil costs India roughly $15 billion in additional annual import bills.
The RBI was selling dollars from reserves to defend the rupee (FX reserves data for the week before showed another draw), but reserves are finite and the central bank knows it. Behind that is dollar strength on global flight-to-safety bids, with emerging market currencies taking the other side of that trade.
The third is the structural backdrop. The rupee has weakened against the dollar at a compound rate of roughly 3.4% to 3.9% per year for a decade. The May 2026 move was that trend, accelerated.
For a US-based NRI, the math gets worse every week. Take the Mumbai apartment example from Edition 2. It was bought in 2014 for ₹5.5 crore at 60.95 ($902,379) and sold at ₹7 crore in mid-May 2026. At 95.97, that ₹7 crore returns $729,395, a USD loss of 19.2% on the original investment.
In the seven days since the previous Friday alone, the same hypothetical sale lost another $11,895 in USD terms. Neither the asset nor its rupee price moved. Only the currency moved.
The same drag shows up in Indian equities held from the US. The 6.76% rupee depreciation in 2026 through mid-May is part of the return of every US-listed India ETF. In INR terms, the underlying portfolio of INDA (the iShares MSCI India ETF) is down about 4% to 5% YTD. In USD terms, which is what you spend, it is down 11%. The currency did more than half of the damage.
For NRIs with India exposure, this is the structural argument for currency-hedged India ETFs (none of the five largest US-listed India ETFs are hedged). It is also the argument for FCNR-style USD-denominated holdings instead of equity in the first place.
Before you fund an FCNR deposit
The points above come down to a short order of checks:
- Set aside only dollars you will not need for 12 months or longer. Closing before one year usually means you forfeit the interest.
- Compare banks before you default to the one you already use. The gap between the highest and lowest 1-year rate in the survey is 135 bps.
- Plan for the US tax. The interest is exempt in India but goes on your 1040 as ordinary interest income.
From Edition 3 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.