FCNR or NRE? When to keep your savings in dollars

Two ways to park money in India

NRE fixed deposit. You send Canadian dollars; the bank converts them to rupees and pays rupee interest. Your deposit is now exposed to the CAD⇄INR rate: if the rupee weakens, it’s worth fewer dollars when you bring it back.

FCNR deposit (Foreign Currency Non-Resident). The money stays in a foreign currency for the whole term, so a Canadian-dollar FCNR deposit comes back as Canadian dollars. FCNR accounts are term deposits only, for one to five years, in any freely convertible currency your bank offers. Not every bank offers Canadian dollars, so ask.

Do the maths before you convert

The gap between rupee and dollar interest rates is, roughly, the market’s guess at how much the rupee will weaken. So the choice comes down to whether you think it will weaken by more or less than that. Here’s an example with made-up but realistic rates:

• You have $10,000. At ₹67.75 a dollar, that’s ₹6,77,500.
• NRE FD at 7% for 3 years, compounded quarterly, grows to ₹8,34,300.
• FCNR in Canadian dollars at 4% for 3 years grows to $11,249.

The two come out equal if, in three years, a Canadian dollar costs ₹74.17. That’s the rupee weakening by about 9.5%. If it weakens more than that, the FCNR deposit wins; if it weakens less, or strengthens, the NRE deposit wins.

Over the long run the rupee has tended to weaken against the dollar, but not every year and not predictably. Use your bank’s real rates for your own comparison.

Which one suits you

FCNR makes sense if

• you’ll probably bring the money back to Canada, for a down payment or a rainy-day fund;
• you don’t want your savings to depend on the rupee;
• you won’t need the money within a year.

NRE makes sense if

• you’ll spend the money in India, on family, property or a future move back;
• you want the higher rupee rate and accept the currency risk;
• you want flexibility: NRE savings accounts and shorter deposits are easier to dip into.

Before you lock it in

• Breaking early costs. Banks generally pay no interest if you close an FCNR deposit within a year, and charge a penalty on early NRE FD withdrawals.
• Canada taxes the interest every year, on both, even if it stays in India. Report it in Canadian dollars.
• Currency gains can count too. When you convert rupees back, Canada treats a gain or loss from the exchange rate as a capital gain or loss. For individuals, the first $200 of net currency gains in a year isn’t taxed.