FCNR Fixed Deposits – Rules And Regulations
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With FCNR Fixed Deposits, you can deposit your foreign currency earnings and protect them from currency rate fluctuations. You can also prematurely withdraw the FD if needed. However, the rules and penalties for premature withdrawals depend on when you choose to withdraw the FD during the term.
As an NRI, you may be looking for a safe investment avenue to put away your foreign currency earnings, and you may find it in FCNR accounts. Such an account helps you fix your foreign earnings at the current forex rate without worrying about any fluctuations upon maturity. But can you break your FCNR Deposits before maturity? What penalty will the bank charge you if you do? If such questions have been occupying your mind, it is time you get acquainted with the rules and regulations surrounding FCNR fixed deposits. Read on to know more.
What Is An FCNR Account?
Short for Foreign Current Non-Resident, an FCNR account is one in which you, as an NRI, can deposit your foreign currency earnings for a fixed tenure. The money you deposit in the FCNR Fixed Deposits earns you interest income. The interest income on these FDs is tax-free in India. Not only do you benefit from high-interest rates from creating FCNR Fixed Deposits, but you can also protect your foreign currency against any exchange rate fluctuations.
FCNR Accounts – Rules and Regulations
- FCNR is a foreign currency deposit wherein your money is maintained in the currency of deposit and not converted to INR.
- You can maintain your FCNR deposit in any RBI approved currency.
- The interest offered on FCNR FDs differs based on the currency of deposit.
- The FCNR deposit is a term deposit with tenures lasting from one to five years.
- You can continue holding the FCNR deposit to maturity, earning the agreed-upon interest rate, even if your residency status changes to Resident Indian during the deposit term.
- You may freely repatriate the entire FD, i.e., the principal investment amount and the interest earned on it.
- You can apply for loans against your FCNR FD and repay them from your maturity proceeds.
- You may create the FCNR FD jointly with another NRI.
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Can You Break FCNR Fixed Deposit Before Maturity?
While investing in a fixed deposit, there is one thing that may concern you – liquidity. Can you liquidate your FD when you need funds urgently, or do you have to stay invested until the end of the term? What are the rules concerning the premature withdrawal of your FCNR Fixed Deposits? Naturally, you need to be aware of these before you invest.
The good news is that you can break your FCNR FD before the stipulated investment term. Whether or not you will be penalised for breaking the FD pre-term will depend on when you choose to withdraw the FD during the investment term.
Withdrawing The FCNR FD Within A Year
If you choose to withdraw the FDNR FD, you can do so. However, the bank will levy a penalty on premature withdrawals. The penalty differs from one bank to another. In most cases, the bank will not pay you any interest for breaking the FD within a year of deposit. As such, you must forfeit any interest earned on the FD during the year. Note that you may compound the FD interest on a half-yearly basis, but the interest income is only paid at the end of one investment year.
Withdrawing The FCNR FD After The Minimum One Year Of Investment
Banks typically do not levy any penalty for premature FCNR Fixed Deposit withdrawals, so long as the withdrawal is made after one year of investment. You will be paid your interest income up to the duration that you stay invested. The bank will pay you the base rate for the original tenor associated with the deposit. As such, you can invest without worrying about liquidity or penalties.
While the FCNR fixed deposit is an excellent investment option, you must remember that you are locking away your foreign currency. As such, you must consider this investment only if you are sure that you will not need the money to support your life in a foreign land. If you are sure, you will not need the money, the FCNR deposit can prove to be a lucrative investment.
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*Disclaimer: This article is published purely from an information perspective and it should not be deduced that the offering is available from DBS Bank India Limited or in partnership with any of its channel partners.
The purpose of this blog is not to provide advice but to provide information. Sound professional advice should be taken before making any investment decisions. The bank will not be responsible for any tax loss/other loss suffered by a person acting on the above.