The FCNR trade, after tax.

Edition 9: What the 13.8% posters leave out · Real returns for a New Jersey and a Florida filer

Manish Hemrajani
July 12, 2026

Since our last edition, the FCNR scheme has become the most-forwarded topic in the NRI community — and the pitch has escalated. Bank posters now advertise “up to 13.8%” and “14.08%” annual yields. Advisory notes promise 17% to 27%. A Kotak deal sheet shows 13.05% on twelve-times leverage.

Every one of those numbers is real, pre-tax, and calculated for someone who does not file a U.S. return. This supplement does the one calculation none of those posters run: what a U.S. taxpayer in New Jersey and one in Florida actually keep, on $100,000 and on $1 million, at a 6% and a 6.5% rate, with and without leverage. We will officiate the whole thing like a match — because some of these plays deserve a card.

READING THE POSTERS
Posted USD FCNR(B) rates by tenor · as of June 11, 2026

Three documents circulating this week tell the real story better than any brochure headline. Read the deposit rate and the loan rate side by side, and the “yield” explains itself.

Source	Deposit	Loan	Lev.	Spread	Headline
Axis (5-yr)	6.00%	5.41%	9×	0.59%	13.8%
SBI (5-yr)	6.00%	5.40%	9×	0.60%	14.08%
Kotak (12×)	6.25%	6.00%	12×	0.25%	13.05%

Deposit and loan rates as posted by each institution. The Kotak sheet adds a 0.24% annual processing fee charged on the leveraged amount, not the equity — which, on a larger base than the spread, consumes roughly nine-tenths of the 0.25% gross spread. The spread is the gap from which the entire advertised yield is derived.

Notice what every row has in common. The double-digit headline is never the deposit rate — it is a spread of roughly half a percentage point, or a quarter, multiplied nine or twelve times. The deposit is collateral; the leverage is the product. And in these packaged products both rates are fixed for the term, so the danger is not that the borrowing cost climbs mid-match. It is that the spread is locked thin from the opening whistle — a quarter point gross, most of it eaten by the processing fee, as the Kotak sheet below shows — leaving almost no room to absorb the U.S. tax that follows..

THE CLEAN TRADE
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. Here is what a U.S. filer actually 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. $100k saver modeled at the 24% federal bracket; $1M saver at 32% federal + 3.8% NIIT. NJ adds 6.37% state tax for both savers (the bracket for income below $500k MFJ); FL adds none. Illustration, not tax advice.

Two things jump out. First, the 6% headline lands as roughly 4.5% for a $100k Florida saver and about 3.5% for a $1M New Jersey saver — the U.S. tax bite runs from a quarter to 40% of the coupon, and India’s exemption provides no offsetting credit. Second, the state you file in moves the result meaningfully: the same $1M 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 it is earned 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 actually completed, then banks 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: term out only dollars you can genuinely leave untouched for the full three or five years. This is committed capital, not a parking spot.

PLAYBOOK MOVE

For most readers this is the whole game: an unleveraged FCNR deposit, booked before September 30, 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.

HOW IT COMPARES
FCNR against the dollar alternatives, all after U.S. tax

The real question is not whether 6% beats a savings account, but how the FCNR deposit stacks up against 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.

After tax	$100k US		$1M US		Dubai
Instrument	NJ	FL	NJ	FL	non-US
FCNR 6.5% state-tax	4.53%	4.94%	3.76%	4.17%	6.50%
FCNR 6.0% state-tax	4.18%	4.56%	3.47%	3.85%	6.00%
3-Yr CD 4.25% state-tax	2.96%	3.23%	2.46%	2.73%	4.25%
I Bond 4.26% state-exempt	3.24%	3.24%	2.73%	2.73%	—
T-Bill 3.75% state-exempt	2.85%	2.85%	2.41%	2.41%	3.75%

After-tax yield on an unleveraged holding. $100k saver at the 24% federal bracket; $1M 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 $500k 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 —). Benchmarks as of July 2026: 3-year CD top rate 4.25% APY (typical online 4.00–4.15%, national average 1.67%); I Bond composite 4.26%; Treasury bill 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 — but 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: an edge of about 100 basis points, in return for locking 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 rides on the investor’s bracket and state.

THE NON-US INVESTOR — WHO THE POSTERS ARE FOR
The last column is the one that explains the whole match. A non-US investor sitting in a zero-tax jurisdiction like Dubai keeps the gross rate on every line in the table. FCNR interest is exempt in India for non-residents, the UAE charges no income tax, and even the U.S. instruments pay untaxed — interest on U.S. bank deposits, CDs, and Treasuries is exempt from U.S. tax for a nonresident alien not engaged in a U.S. trade or business. For that player FCNR at 6.5% pays a clean 6.5%, and the leveraged 13% headline lands close to 13% after all tax.

That is the whole point. The 13.8% posters, the 14.08% banners, and the 17-to-27% advisory notes are drawn up for exactly this reader — the Dubai or Singapore resident who is not a U.S. person — and for him the numbers are broadly right. The foul is a U.S. taxpayer picking up a program written for another team’s roster and assuming he can run the same play. The one instrument the Dubai investor cannot field is the I Bond, which needs U.S. registration — a small irony, since it was one of the better options left standing for the U.S. filer.

THE LEVERAGE PLAY
Where the double-digit headline meets the US tax code

Now the leveraged version, on the $1 million minimum the banks actually require. We take the more generous of the circulating structures — a 6.5% deposit against a 5% borrowing cost at seven times leverage — so the pitch gets a fair hearing. Both rates are fixed for the term. The pre-tax return is the advertised 17%. Watch how the numbers are dressed: the Kotak sheet quotes the same deposit three ways — 6.25% as the nominal rate, 6.80% as the effective annualized yield once compounding is counted, and 13.05% as the yield on the client’s equity after leverage. Each is a bigger number on a smaller base, and the marketing always leads with the biggest. The result then turns on how the interest reaches the IRS. Banks typically issue a statement showing the net interest earned — deposit interest less loan interest — and where the borrowed funds trace directly to the deposit, that net figure is what the investor reports, which makes the financing interest effectively deductible. The table shows both outcomes: the base case, where the net treatment holds, and the downside, where a filer cannot substantiate the tracing and is taxed on the gross deposit interest.

$1M Equity · 7× · 6.5% Deposit / 5.0% Borrow · Pre-tax +17%
Outcome	New Jersey	Florida
Base case — net reporting	+9.8%	+10.9%
Downside — taxed on gross	−4.9%	−1.6%

$1M saver at 32% federal + 3.8% NIIT; NJ adds 6.37%, FL none. The base case assumes the bank’s net-interest statement governs and the loan is traceable to the deposit; the downside assumes the filer is taxed on gross deposit interest with the financing not deductible. Illustration, not tax advice.

The advertised 17% is gone in every cell. In the base case, where the bank’s net-interest statement governs and the tracing holds, the position returns roughly 10% in New Jersey and 11% in Florida — positive, but around half the advertised figure and less than the unleveraged deposit yields once the added risk is counted. In the downside, where a filer is taxed on the gross deposit interest, the position loses money: a New Jersey filer down 4.9%, a Florida filer down 1.6%. That is on the generous spread. Run the Kotak sheet’s actual numbers — the 0.25% spread, levered twelve times — and the downside loss for a New Jersey filer approaches 28%, as the tax on the gross interest dwarfs the net earnings. Leverage magnifies a spread that, after fees, is close to zero, and the whole result depends on the tax reporting holding up.

YELLOW CARD — THE SMALL-BANK TRAP

The 7.1% headline belongs to small-finance banks like AU and Equitas — which have no overseas branches, so they cannot issue the standby letter of credit the leverage loop needs. You can have the top rate or you can have leverage, not both. The large banks that can lever offer 6% or less, which is precisely where the spread thins to the danger zone.

RED CARD — “SKIP THE PLAIN DEPOSIT”

One advisory note tells clients not to book a plain 6–7% FCNR deposit, because it would “exhaust your eligibility” for leveraged products. For a U.S. filer that is exactly backwards: it steers you out of the one version that reliably clears after tax and into the one that can post a loss. Advice to skip the safe trade for the leveraged one earns a straight red.

OWN GOAL — THE REPORTING RISK

The base case rests entirely on the bank’s net-interest statement being accepted and the loan tracing cleanly to the deposit. If that treatment fails — the tracing can’t be substantiated, or the return is filed wrong — the IRS taxes the gross deposit interest, which on a large leveraged position can run several times the net earnings and put the ball in your own net. The result turns on the paperwork, not the market, which is why documentation and professional advice come before booking, not after.

BEFORE YOU FILE
The paperwork the deposit triggers — and the thresholds that decide it

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. They are informational, they run on different thresholds, and a large leveraged deposit clears both instantly — on the gross deposit amount, not your equity. Miss them and the penalties dwarf 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 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; a value crossed at any point counts. FATCA year-end figures also carry a higher any-time-during-year test ($75k US single, $300k abroad single). The two are separate filings — filing one does not satisfy the other. Illustration, not tax advice.

The practical read 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. And 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, not after.

The Final Whistle

Strip away the cards and the scoreline is simple. For a U.S. taxpayer, the unleveraged FCNR deposit is a fair, clean result — a real rate on dollars, with the number you keep set by your bracket and your state. The leveraged version is a professional-grade trade whose advertised return is a pre-tax, non-U.S. figure that degrades to a coin-flip at best and a loss at worst once the IRS is on the pitch. Book the deposit if it clears your own after-tax hurdle. Treat every “13.8%” poster as what it is: a headline that stops calculating exactly where your tax return begins.

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Disclaimer. NRI Playbook is for informational purposes only and does not constitute financial, tax, legal, or immigration advice. We are not registered investment advisors, tax preparers, or attorneys. Information reflects our editorial perspective at the time of writing. For decisions about your specific situation, consult a qualified cross-border tax professional, financial advisor, or immigration attorney. Past performance is not indicative of future results. Market data may be delayed or revised.