FCNR Account: Are you aware of the pros and cons?

Earning in foreigncurrencyoffers you plenty of benefits, one of which includes, the high conversion rates. But while you, as an NRI, can always exchange the foreign funds for a higher conversion value, you get an added advantage if you invest the funds for a return on investment. This is when the foreign currency non – resident fixed deposit account will work in your favour.

Given below is all that you need to know about the fixed deposit pertaining to the FCNR account.
Advantages:

• The FCNR account works like the fixed deposit. It offers the ideal protection against forex rate risks, especially if they are maintained in foreign currency. In other words, if the funds are transferredin the currency value that it is invested in, it will be done without any loss of exchange.
• Any interest that is earned on the FCNR deposit in India is exempted from the Income tax.
• The FCNR account can have more than two NRI joint account holders. However, a joint account holder with another resident in India is not permitted.
• Funds in the FCNR account can be held in several major currencies, including Pound Sterling, US Dollar, Yen and Euro.
• The principal amount and interest earned are freely repatriable, to the depositor’s country of residence without any restrictions.
• The interest rates on the FCNR term deposits are payable after the end of the first year. The interest is then compounded on a half – yearly basis.
• The tenure of the account offered is not less than one year and not more than three years.

Disadvantages:

• The FCNR deposits are held only in term deposits. It cannot be held in current, savings or recurring accounts.
• There is a risk of investing in an FCNR deposit in a weak bank. The said bank may be unable to pay back the interest or even the invested funds upon maturity. Most credit guarantees in India covers accounts in India to around Rs. 1,00,000 or 1600 USD, which is considered low.
• In the event a financial meltdown occurs, banks may not be able to repatriate funds. One major example is the Greek crisis. Most individuals were restricted from withdrawing over 40 euros from their accounts.
• If the FCNR deposit is withdrawn in less than a year, no interest is payable on the deposit.
• If the account holder wants to take out a foreign currency loan in India against the FCNR accounts, it can be taken by the account holder only.
• The FCNR account can be transferred to the NRE accounts before maturity. However, any premature withdrawals will attract penalties. Additionally, swapping charges are applicable by the bank where the FCNR accountis held.
• The FCNR account can be renewed within 14 days after maturity. If it is not dining, then the bank will fix the interest rate on renewal.

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