UAE NRIs: Should you keep your dollars abroad or move them into FCNR (B) deposits?

For UAE-based non-resident Indians (NRIs), the choice between keeping dollar-linked savings overseas and moving funds into Foreign Currency Non-Resident (Bank), or FCNR(B), deposits in India has become more relevant as Indian banks offer attractive foreign-currency deposit rates. However, experts say the decision should depend on liquidity, taxation, investment goals and the period for which the money can be locked in.

Why UAE NRIs have a dollar advantage

The UAE dirham is pegged to the US dollar, making dollar-denominated assets a natural option for UAE-based NRIs. Ankur Choudhary, CEO and Co-Founder of Belong, India’s first GIFT City-based retail investment app, said holding savings in USD-linked instruments can be a compelling strategy for investors in the UAE.

This is particularly relevant because the Indian rupee has historically depreciated against the US dollar. Choudhary said the rupee has recorded an average annual depreciation of roughly 3% against the dollar since 1991.

ALSO READ: FCNR(B) deposits surge $65.4 billion, pushing India’s forex reserves to a record $729.33 billion

For an NRI whose income and savings are effectively linked to the dollar, retaining a substantial portion of wealth in USD-denominated assets can therefore provide a hedge against long-term rupee depreciation.

MUST READ: NRI investment in India gets a GIFT City route: What the Wealth Company’s new fund offers

FCNR deposits offer fixed dollar returns

FCNR(B) deposits provide another route for UAE NRIs looking to retain foreign-currency exposure while earning a fixed return. Unlike ordinary rupee deposits, the principal and interest on eligible FCNR(B) deposits are maintained in foreign currency, protecting the investor from direct INR currency risk while the money remains in the deposit.

Choudhary said FCNR(B) deposits can suit NRIs who want to hold foreign currency, earn a predictable return and retain repatriability.

Several Indian banks have offered FCNR rates above 7% under the RBI’s special concessional swap facility. However, the special window is scheduled to close on August 31, potentially changing the rate equation for new deposits.

Liquidity is a key consideration

The higher FCNR rates can come with a three-to-five-year investment horizon. That may not suit an NRI who expects to need the money for property purchases, education or other major expenses in the near term.

“Keeping dollars abroad may be more suitable for those who need greater liquidity in the near term,” Choudhary said, adding that investors should also consider global investment opportunities available outside India.

MUST READ: FCNR(B) deposits: IDFC FIRST, IndusInd offer 6.75%; top PSU banks offer 6.60% as RBI forex window nears closure

What about tax and returning to India?

FCNR(B) interest is generally tax-free in India for eligible NRIs, although the tax treatment in the investor’s country of residence needs to be checked.

For NRIs eventually returning to India, the Resident but Not Ordinarily Resident (RNOR) status can also be relevant. Choudhary said this transitional status typically applies for two to three years after returning, potentially allowing foreign-sourced income to remain outside Indian taxation during the applicable period.

For UAE NRIs, the decision, therefore, need not be an either-or choice. Maintaining the majority of long-term savings in USD-linked assets, while keeping a smaller INR allocation through NRE/NRO accounts for routine Indian expenses, could provide both currency protection and liquidity. FCNR deposits can then serve as a fixed-return component for money that does not need to be accessed immediately.

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