Pros and Cons of FCNR Account

As an NRI, you have multiple options to select from when it comes to opening a deposit account. To name a few, the options are:

1. NRE or NRO Savings Account
2. NRE/NRO Fixed Deposit Account
3. FCNR Fixed Deposit Account All of these services are available in most of the banks across India. If you are an NRI, here are a few questions to consider before opening a deposit account of any kind.
4. Can I deposit both my earnings (from India and abroad) into a single account?
5. Can a relative of mine operate the account on my behalf?
6. What are the different types of currency that can be held in my NRO account?
7. Will the principal amount/interest be subject to income tax?
8. Can I repatriate the deposit to the source country?

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The advantages of a FCNR account are

1. FCNR accounts are protected against forex rate risks. The deposit is maintained in a foreign currency.
2. The interest earned from a FCNR account is exempt from Income Tax.
3. You (NRI) can open a FCNR account with two or more NRI joint account holders.
4. You have the option to select multiple currencies - Pound Sterling, US Dollar, Yen and Euro.
5. With a FCNR account, you can easily repatriate the principal as well as the interest earned to the country of residence/origin.
6. The tenure ranges from 1 year to 3 years.
7. The interest rates are compounded on a half-yearly basis and is payable after the end of the first year.
8. You can apply for a loan against the funds held in your FCNR account. The loan amount will be in INR and can be repaid from the maturity proceeds.

The disadvantages of a FCNR Account are

1. If the FCNR deposit is held within a weak bank, the bank might be unable to pay back the proceeds on maturity.
2. In case of a financial meltdown, the banks will not be able to repatriate the funds.
3. If the deposit is withdrawn within 1 year, no interest is payable.
4. A FCNR deposit is offered for term deposits only.
5. Penalties are applicable in case of premature withdrawal.