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By the NRIWallah team · Last reviewed: July 2026

The FCNR Window Closes 30 September 2026

Why 3-5 year dollar deposits suddenly pay 6% or more — and what happens to rates after the deadline

Common Questions

When an Indian bank takes a deposit in dollars but lends in rupees, it has to hedge the currency mismatch — and that hedge costs roughly 3 to 3.5% a year. That cost comes straight out of the rate the bank can offer you. Under the current arrangement the RBI absorbs that hedging cost centrally through a swap facility, and has relaxed the usual ceiling on FCNR(B) interest rates at the same time. With the hedging drag lifted, banks can pass through far more of the underlying dollar yield, which is why advertised rates roughly doubled rather than nudging upward.
Reported terms are that the facility covers fresh or renewed FCNR(B) deposits with a tenure of three to five years, booked or renewed between 8 June and 30 September 2026. Shorter tenures — one and two year deposits — sit outside the window and continue at ordinary card rates, which is why you will see a strange-looking table where a 3-year deposit pays considerably more than a 2-year one. Confirm the precise terms with your bank before booking, as implementation details vary between lenders.
If you book inside the window, the rate is contracted for the full term of your deposit — the deadline governs when you can book, not how long the rate lasts. That is the entire point of the urgency. Deposits booked after the window closes are expected to revert to normal economics, with rates falling back towards the 3 to 3.5% range as banks resume carrying the hedging cost themselves. Nothing is guaranteed: the facility could be extended, or ended early.
For the right person it is genuinely attractive — a mid-6% dollar return with no rupee exposure and no equity risk compares well against most developed-market deposit accounts. But two things decide whether it is good for you. First, tax: the interest is tax-free in India but generally taxable where you live, so a UK or US resident keeps materially less than the headline. Second, the lock-in: this is a three-to-five year commitment, and breaking an FCNR deposit early usually means forfeiting interest. Use our FCNR calculator to see the after-tax picture for your own residence.
Be very careful here — this is exactly the window in which that pitch circulates hardest. A wider spread does improve the arithmetic, and for a Gulf or Singapore resident with cheap secured borrowing the numbers can genuinely work. For a UK, US, Canadian or Australian taxpayer they usually still do not, because the interest is taxed while personal loan interest attracts no relief. Even where it works, you are taking a leveraged position with a multi-year lock-in for a thin margin. Run it honestly through the borrow-to-deposit calculator before anyone talks you into it.
It closes most of the gap. NRE deposits pay around 6.5-7% but in rupees, so your real return depends on what the rupee does over the term. With FCNR now paying around 6% in dollars, you are giving up very little yield to remove currency risk entirely — which is an unusually favourable trade-off and a large part of why the window matters. Our FD comparison calculator models the rupee side so you can see how much depreciation it takes for NRE to lose its advantage.

Tools & related guides

FCNR Deposit Calculator

FD Rate Comparison

NRI Banking (NRE/NRO/FCNR)

Something Unusual Has Happened to Dollar Deposit Rates in India

For years the FCNR deposit was the sensible, boring option: no rupee risk, and a rate low enough that most NRIs took the higher-paying NRE deposit and accepted the currency exposure. Three-to-five year dollar deposits paid somewhere around 3.4 to 3.65%.

Since June 2026 that has changed sharply. Major banks moved their 3-5 year dollar rates to around 6%, and several lenders have gone higher still — reported figures include Kotak at 6.15% for larger deposits, Yes Bank at 6.5-6.6%, Punjab National Bank at 6.1%, and AU Small Finance Bank at 7.1%. This is not banks competing for deposits in the ordinary way. It is the direct result of a policy decision with an expiry date attached.

Why the Rate Doubled

An Indian bank taking a dollar deposit and lending in rupees carries a currency mismatch it must hedge, and that hedge costs roughly 3 to 3.5% a year. Every rupee of that cost is a rupee it cannot pay you in interest. Under the present arrangement, the RBI absorbs that hedging cost through a swap facility and has relaxed the ceiling on FCNR(B) rates at the same time.

Remove a 3% cost from the economics of a product and the rate available to the depositor roughly doubles. That is precisely what happened, and it explains the otherwise baffling shape of current rate tables — a three-year deposit paying far more than a two-year one, because only the three-to-five year bucket sits inside the facility.

The Deadline Is About Booking, Not Duration

This is the part worth being clear about, because it is where people misunderstand the urgency. The 30 September 2026 deadline governs when you can book, not how long your rate lasts. A five-year deposit opened inside the window carries its contracted rate for the full five years, well past the deadline. Miss the window and you are booking at whatever the ordinary economics support, which observers expect to mean a return towards the 3 to 3.5% range.

So the decision in front of an NRI right now is genuinely time-limited in a way that most financial decisions are not. That is unusual, and it is why the subject is worth your attention this quarter rather than next.

Three Things to Check Before You Move Money

Your tax residence. The interest is tax-free in India and that fact is repeated everywhere, but it is not tax-free where you live. A UK higher-rate taxpayer keeps roughly 3.6% of a 6% headline; a Gulf or Singapore resident keeps all of it. This single factor changes the answer more than any rate difference between banks, and our FCNR calculator is built around it.

The lock-in. Three to five years is a long commitment, and breaking an FCNR deposit early typically forfeits interest — some banks pay nothing at all on deposits broken inside twelve months. Only commit money you can genuinely leave alone.

Whether it beats your alternative. Around 6% in dollars is strong against a Western savings account, but compare it honestly against an NRE rupee deposit at 6.5-7%, where the extra yield comes with currency risk, and against simply keeping the money invested where you are. The FD comparison calculator does that arithmetic including the rupee effect.

A Word on the Borrowing Pitch

Whenever a rate window like this opens, so does the suggestion that you should borrow to exploit it. The logic sounds airtight because FCNR carries no currency risk — borrow dollars, deposit dollars, keep the spread. It deserves a sceptical look. For most NRIs outside the Gulf, tax on the interest combined with no relief on loan interest turns a positive-looking spread negative, and even where it works the margin is thin against a multi-year leveraged commitment. We built a dedicated calculator for exactly this question, and for most readers it returns an unambiguous answer.

NRIWallah does not provide financial advice. Rates and window terms reported here are drawn from published news coverage and bank disclosures as at late July 2026 and change frequently — confirm the current rate, the exact eligibility terms, and the booking deadline directly with your bank before committing funds. Policy facilities of this kind can be extended, amended, or withdrawn.

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