Should NRIs split their savings between FCNR(B) and NRE Deposits? Here's how a mix can balance returns, currency risk

The Reserve Bank of India's temporary measures to boost foreign currency inflows have renewed interest in NRI fixed deposits, particularly Foreign Currency Non-Resident (Bank) [FCNR(B)] and Non-Resident External (NRE) deposits. While many NRIs may be comparing interest rates to decide where to invest, experts say the choice should be driven by financial goals, currency outlook and risk appetite rather than headline returns alone.

In its June monetary policy measures, the RBI announced that it would bear the foreign exchange hedging cost under a special swap facility and removed the ceiling on FCNR(B) deposit interest rates until September 30, 2026. The move aims to encourage banks to mobilise foreign currency deposits by reducing their hedging costs—the expense banks incur to protect themselves against exchange rate fluctuations when converting foreign currency deposits into rupees for lending.

Understanding the two deposit options

An NRE fixed deposit allows NRIs to park overseas earnings in India in Indian rupees. Both the principal and interest are fully repatriable, and the interest earned is tax-free in India for eligible NRIs. However, because the deposit is rupee-denominated, returns ultimately depend on how the Indian currency performs against the depositor's home currency.

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An FCNR(B) deposit, on the other hand, is maintained in a permitted foreign currency such as the US dollar, British pound, euro, Japanese yen, Australian dollar, Canadian dollar or Singapore dollar. Both the principal and interest are paid back in the same foreign currency, shielding depositors from exchange rate fluctuations.

Why interest rates tell only part of the story

Arushi Bhagotra, Consultant, Centre for Law, Policy & Governance, NFPRC Foundation, says comparing the two products solely on interest rates can be misleading.

"While the enhanced returns on offer have renewed interest in FCNR(B) and NRE deposits, it would be inaccurate to frame the choice between them as a comparison of headline rates. The more consequential distinction is who bears the currency risk," she said.

According to Bhagotra, an NRE deposit may offer an attractive interest rate of 7-8%, but any depreciation in the rupee reduces the depositor's effective return in their home currency. In contrast, FCNR(B) deposits eliminate currency risk because both principal and interest are maintained in the same foreign currency.

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Can a combination work better?

Rather than choosing one product over the other, experts say many NRIs may benefit from allocating money to both.

Siddharth Maurya, Managing Director at Vibhavangal Anukulkara Pvt Ltd, says FCNR(B) deposits are suitable for NRIs planning overseas expenses or expecting the rupee to weaken, while NRE deposits may be more rewarding for those who believe the rupee will remain stable or appreciate and intend to invest or spend in India.

He says a combination of both deposits can help optimise returns while managing currency risk, depending on an individual's financial goals, foreign currency exposure and investment horizon.

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Paritosh Desai, Chief Product Officer and Chief Marketing Officer at IDfy, echoes a similar view, saying the decision should depend on an NRI's financial objectives, currency outlook and risk tolerance. FCNR(B) deposits provide protection against exchange-rate volatility, while NRE deposits offer greater flexibility for those planning to use their money in India.

With the RBI's special relaxation available only until September 30, 2026, eligible NRIs considering long-term deposits may find that a balanced allocation between FCNR(B) and NRE deposits offers a practical way to combine stable foreign currency returns with the potential benefits of higher rupee interest rates.

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