NRE or FCNR: where is your break-even?
NRE pays more, in rupees. FCNR pays less, in dollars. The gap is your bet on the rupee: if it ends weaker than the break-even rate, the FCNR wins.
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NRE and FCNR, explained
Both are deposits for non-residents. The difference is the currency your money sits in, and so who carries the exchange-rate risk.
- What is the difference between an NRE and an FCNR deposit?
- An NRE deposit holds rupees: it usually pays a higher rate, and you carry the rupee’s movement. An FCNR deposit holds a foreign currency such as US dollars: it usually pays less, and your principal stays in that currency.
- What does the break-even rate mean?
- The rupees-per-dollar rate at maturity where both deposits end up worth the same. If the rupee ends weaker than it, the FCNR comes out ahead; stronger, and the NRE does.
- How is it calculated?
- Today’s rate × (1 + NRE rate)ⁿ ÷ (1 + FCNR rate)ⁿ, where n is the number of years. It leaves out tax and any bank charges.
- Is the interest taxed?
- Interest on both is tax-free in India for non-residents, but it may be taxed in the country where you live. Your status in India each year decides how long the Indian exemption lasts; check it with the NRI status calculator.