As an NRI, you would be earning your salary in the currency of the country you are residing in. If you live in the USA, for instance, you will make money in US dollars, if you stay in the UK, the earnings will be in GBP, and if you stay in any European country, you would be making a living in EUR. These currencies are higher than INR, and if you can save from these earnings, you create a special fixed deposit in the form of an FCNR account.
The following are the benefits of opening the same:
A wide range of foreign currencies are acceptable
The RBI allows NRIs to create a wide range of NRI FDs, including deposits for NRE and NRO accounts. However, both these accounts can be open only with limited deposits. Unlike these accounts, the foreign currency accounts can be created with a wide range of foreign currencies such as GBP, EUR, JPY, USD, AUD, CAD, NZD, SGD, and HKD. Besides the dollar currencies, deposits are also permitted in SFR, DKK, and SEK according to RBIs revised guidelines of 2011.
Interest earned in foreign currency
Since it is a foreign currency deposit, the FCNR rates are also paid out in the deposit currency. So, if you created a Swedish Krona, the interest is also in SEK. This is incredibly beneficial when you start an FD in a strong currency. Besides, the rates on these FDs are excellent, making it a worthwhile investment.
Interest is tax-free in India
You only pay taxes on the interest on your NRO FDs However, for FCNR rates, you need not pay any taxes on the interest earned in India. This is a massive benefit that allows you to maximise the return on investments. However, you should confirm the country of residence's taxation laws since you might be required to pay taxes on the interest of the concerned country.
Flexible investment tenures
For creating an FCNR deposit, you can play around with the tenures. The overall returns you earn on the investment largely depends on the chosen term. Generally, such FDs can be created for minimum and maximum one to five years, respectively. The higher the selected duration, the higher the returns. You can also prematurely withdraw the FD by paying a minimum penalty of a per cent.
Apply for loans and overdraft facilities
The other significant advantage of the FCNR account is that it is useful for applying for loans or overdrafts. The overdraft facility gets utilised against the foreign currency deposit. Also, you can apply for car, personal, or other such small and significant loans, both in India and overseas, against the FD. The FD serves as collateral against the loan.