Should NRIs Lock Money Into FCNR Deposits After The 6% Window Closed, And What Still Pays?
NRI Money · Deposits · India · September 2026
Should NRIs Lock Money Into FCNR Deposits After The 6% Window Closed, And What Still Pays?
India’s special dollar deposit scheme shut on 31 August 2026 after drawing $127.23 billion. Bank rates on three-year dollar deposits reset to roughly 3.25% from 1 September. One smaller window is still open.
You read about it in July. Indian banks were paying 6% and more on plain dollar deposits, tax-free in India, with the principal never touching the rupee. You asked your bank, gathered documents, waited for a remittance to clear. Then, at the start of September, the rate card changed and the number you were quoted had a three in front of it instead of a six.
That was not your bank being difficult. It was the end of a policy, announced on 8 June and closed a month earlier than planned on 31 August. Understanding what actually paid for that 6% is the only way to judge what the same deposit is worth now, at 3.25%, with the same three-year lock attached to it.
Quick Summary
The subsidised window is gone. Fresh FCNR(B) deposits booked after 31 August 2026 no longer qualify for the RBI’s swap facility, and major banks cut three-to-four-year dollar rates to between 2.95% and 3.50% from 1 September. For a dollar-earning NRI, that now sits below a three-year US Treasury at 4.41%. The one relaxation still running is on NRE rupee deposits of three years and above, and that expires on 30 September 2026.
The $136 billion stampede that ended a month early
The scale of the response is the story. On 8 June the Reserve Bank of India opened a concessional dollar-rupee swap facility for banks raising fresh FCNR(B) deposits of three to five years, and exempted those deposits from cash reserve and statutory liquidity requirements. Governor Sanjay Malhotra was reported to have expected around $80 billion. The facility drew far more, and it arrived in a rush at the end.
RBI’s provisional data, published on 2 September, put total inflows under the facility at $136.38 billion as of 31 August. FCNR(B) deposits accounted for $127.23 billion of that, with overseas foreign currency borrowings adding $5.26 billion and external commercial borrowings $3.89 billion. The pace tells you how the last fortnight felt inside bank treasuries: total inflows stood at $72.85 billion on 21 August and rose by about 87% in ten days.
Put the third and second tiles side by side. India’s whole outstanding FCNR(B) book was about $32.8 billion at the end of March 2025, after a strong year of $7.1 billion of inflows. The 2026 window brought in close to four times that entire stock in twelve weeks. That is why RBI pulled the deadline forward on 14 August, citing the encouraging response, and why banks repriced within twenty-four hours of the window shutting.
Why a dollar deposit paid 6% in July and 3.3% in September
An Indian bank that takes your dollars cannot lend dollars to a borrower in Pune. It converts them to rupees, lends rupees, and is left holding a currency mismatch it must hedge for the life of the deposit. That hedge is the single largest cost in the product, and in 2026 it has been running at roughly 280 to 300 basis points a year on a three-to-five-year view. Every basis point of it comes out of the rate you are offered.
The June circular did one thing that mattered: RBI agreed to take that hedge onto its own book at an administered forward rate, so the bank’s hedging cost went to close to zero. Add the reserve exemption, which freed the whole deposit for lending, and a product that normally supports 3.4% could suddenly support 6% or more without the bank losing money. The rate was never a reflection of your creditworthiness or the bank’s appetite. It was a subsidy with a date on it.
Twelve weeks that reset India’s dollar deposit book
What the rate card says this week
The repricing was not a trim. It was a return to the underlying economics, and it happened at six major banks on the same morning. The figures below come from the rate cards effective 1 September 2026 as compiled by Business Today; deposit-size bands apply at several banks, so confirm your own bracket before you commit.
| Bank | Peak rate in window | New 3 to 4 years | New 4 to 5 years | New 5 years |
|---|---|---|---|---|
| HDFC Bank | 6.25% | 3.50% | 3.15% | 3.15% |
| Kotak Mahindra Bank | 6.30% | 3.40% | 3.20% | 3.00% |
| State Bank of India | 6.00% | 3.35% | 2.95% | 3.05% |
| ICICI Bank | 6.25% | 3.25% | 3.25% | 3.25% |
| Punjab National Bank | 6.50% | 3.25% | 3.06% | 3.06% |
| Axis Bank | 6.25% | 3.25% | 2.95% | 2.95% |
Old and new USD FCNR(B) rates, compiled by Business Today on 3 September 2026. Where a bank publishes different rates by deposit size, the widely quoted band is shown. Verify against your bank’s live card.
The comparison that decides it: what your dollars earn elsewhere
Here is the number most coverage skipped. On 3 September 2026, the Federal Reserve’s H.15 release put the three-year US Treasury constant maturity yield at 4.41% and the five-year at 4.52%. Even a three-month Treasury bill was yielding 3.75%. That means the best three-year dollar deposit an Indian bank is currently advertising pays less than a Treasury bill you can sell tomorrow, and roughly 90 basis points less than a government bond of the same maturity.
That inversion is the honest answer to the headline question for anyone earning and taxed in dollars. Locking money for three years to earn less than the shortest, most liquid instrument in the world is not a trade-off, it is a cost. During the window, when FCNR paid 6% against a 4.4% Treasury, the argument was different and the argument was good. It no longer holds.
The rupee question nobody can answer for you
The comparison changes completely if your alternative is not a Treasury but an NRE rupee deposit with the same bank. NRE rates of three years and above are still free of their ceiling until 30 September, and rupee deposit rates run several points above dollar rates for the obvious reason: the rupee is expected to lose ground. FCNR pays you in dollars and removes that risk. NRE pays you more and hands the risk to you. The whole decision reduces to a single break-even.
NRE clearly ahead
NRE ahead
Break-even
FCNR ahead
FCNR clearly ahead
What We Know
- RBI introduced the special USD-INR swap facility on 8 June 2026 for fresh FCNR(B) deposits of three to five years, with CRR and SLR exemption alongside it.
- The mobilisation deadline was brought forward from 30 September to 31 August 2026, announced on 14 August, because inflows exceeded expectations. Banks could execute matching swaps until 11 September.
- Provisional RBI data as of 31 August 2026 shows $136.38 billion of total inflows, including $127.23 billion through FCNR(B) deposits, $5.26 billion via overseas foreign currency borrowings and $3.89 billion via external commercial borrowings.
- Six major banks cut USD FCNR rates from 1 September 2026 into a band of roughly 2.95% to 3.50%, from peaks of 6.00% to 6.50%.
- The interest rate ceiling withdrawal for three-to-five-year FCNR(B) and three-year-plus NRE deposits runs until 30 September 2026.
- FCNR(B) interest is exempt from tax in India for depositors who are non-resident, and both principal and interest are freely repatriable.
- Deposits carried a mandatory one-year lock-in under the scheme, with no interest paid on withdrawal inside twelve months.
What Is Still Unclear
- RBI has described the $136.38 billion as provisional and subject to final reporting and reconciliation, so the audited total may move.
- Whether the NRE rate relaxation is extended past 30 September 2026 or allowed to lapse has not been announced.
- How much of the $127.23 billion is genuinely new money rather than a shift out of NRE and NRO balances is not yet visible in published data, and the answer matters for what happens at maturity.
- The redemption profile is knowable in outline but not in detail. Three-to-five-year deposits booked in mid-2026 come due between mid-2029 and mid-2031, and RBI has not published a maturity schedule.
- India replaced the Income-tax Act, 1961 with new legislation effective from the 2026-27 financial year, so the section reference for the FCNR interest exemption has changed even though the exemption itself has not. Confirm the current citation with your adviser.
- Bank-level premature withdrawal policies after the one-year lock-in vary and several were revised during the window. They are not standardised.
Where an FCNR deposit still earns its place
None of the above makes the product useless. It makes it a currency and planning tool rather than a yield play, which is what it was for most of the last decade. There are four situations where 3.25% in dollars is still the right answer.
Five checks before you sign anything this month
The words on the form, decoded
| Term | What it actually means | Why it matters to you |
|---|---|---|
| FCNR(B) | A term deposit with an Indian bank held in a permitted foreign currency, one to five years. | Principal and interest stay in dollars. No rupee conversion at any point. |
| NRE deposit | A rupee term deposit funded by foreign earnings, fully repatriable. | Higher rate, full rupee risk. Ceiling lifted on 3-year-plus tenors until 30 September 2026. |
| NRO deposit | A rupee account for income earned in India, such as rent or dividends. | Interest is taxable in India and repatriation is capped at $1 million a year. |
| Swap facility | RBI taking the bank’s dollar-rupee hedge onto its own book at an administered forward rate. | The reason 6% existed. Closed to new FCNR deposits after 31 August 2026. |
| CRR and SLR exemption | Relief from holding reserves against the deposit. | Freed the full amount for lending, funding part of the higher rate. |
| ARR plus spread | The normal ceiling formula: overnight reference rate plus 250 or 350 basis points by tenor. | What rates return to once the 30 September relaxation lapses. |
| One-year lock-in | No interest at all if the deposit is broken inside twelve months. | Turns a three-year deposit into money you genuinely cannot touch for a year. |
| Repatriable | Principal and interest can be sent back abroad without approval. | Distinguishes FCNR and NRE from NRO. Do not assume it applies to every NRI account. |
Frequently asked questions
Should NRIs still lock money into FCNR deposits now?
Only for a currency reason, not a yield reason. With three-year dollar rates back at roughly 3.25% and a three-year US Treasury at 4.41% as of 3 September 2026, the deposit no longer pays you for the three-year lock. It remains sensible if you will spend the money in India, if your home savings rate is under 2%, or if you pay no tax where you live.
Can I still get 6% or 7% on an FCNR deposit?
Not on a new booking. Those rates existed only because RBI absorbed banks’ hedging costs for deposits mobilised between 8 June and 31 August 2026. If you booked inside that window, your contracted rate holds for the full tenor, which for a five-year deposit runs into 2031. Fresh deposits are priced on ordinary economics.
Is the FCNR interest rate window really closed, or was it extended?
The mobilisation window closed on 31 August 2026, brought forward from 30 September by an RBI announcement on 14 August. Banks had until 11 September to execute the matching swaps for deposits already contracted. A separate relaxation on interest rate ceilings runs until 30 September 2026, but without the swap subsidy it has little practical effect on dollar rates.
What happens if I break an FCNR deposit early?
Deposits under the scheme carry a mandatory one-year lock-in and pay no interest at all if withdrawn inside twelve months. You get your principal back and nothing else. After a year, premature withdrawal is allowed at the individual bank’s discretion and usually on its own penalty terms. Treat the first year as fully illiquid.
Is FCNR interest taxable in the United States or the United Kingdom?
Yes. The exemption applies in India only. A US person reports the interest as ordinary income and may need to file an FBAR once aggregate foreign accounts exceed $10,000, plus FATCA reporting above higher thresholds. UK residents are taxed on the arising basis in most cases. Residents of the UAE and other zero-tax jurisdictions keep the full amount.
Are FCNR deposits covered by deposit insurance in India?
Yes, within limits. Deposit insurance covers ₹5 lakh per depositor per bank, combining principal and interest across all accounts at that bank, and any payout is made in rupees at the prevailing rate. On a six-figure dollar deposit that covers a small fraction of the balance, which is the argument for splitting large sums across two or three banks.
Is an NRE deposit better than FCNR right now?
On the numbers used in the worked example above, an NRE deposit wins unless the rupee weakens by more than about 4.2% a year for three years. It weakened 4.74% during 2025 and about 3.9% a year over the two years to end-2025, so the two products sit close together. Choose NRE if you will spend in rupees, FCNR if you will not.
What happens when this $127 billion matures?
Deposits booked between June and August 2026 with three-to-five-year tenors fall due between mid-2029 and mid-2031. India has been here before on a smaller scale: the 2013 swap window raised roughly $26 billion and produced a large, well-flagged redemption in September 2016, which RBI managed without disruption. The current cohort is several times larger, and RBI has not published a maturity schedule.
The short version
India ran a three-month sale on dollar deposits, priced by the central bank rather than the market, and $127.23 billion walked through the door before it shut on 31 August. What is left is the ordinary product: about 3.25% in dollars, locked for three years, tax-free in India and taxable almost everywhere else, insured to ₹5 lakh. That is below a US Treasury of the same maturity, which is the fact that settles the question for anyone chasing yield. It is still a reasonable choice for money that is going to be spent in India, for savers in zero-tax jurisdictions, and for anyone who wants an Indian bank without the rupee. The one clock still ticking is the NRE relaxation, and it runs out on 30 September 2026.
