FCNR or RFC Account: 4 Differences to Help You Choose

NRIs living in foreign countries and ones returning to India often struggle to choose between FCNR and RFC bank accounts. Check out this post to know 4 of the biggest differences between the two.

It is very common for NRIs living in foreign countries or those returning to India to convert their foreign earnings into INR. But two of the most common types of NRI bank accounts, NRE and NRO, are Rupee denominated. Any deposit made to these accounts in foreign currency is converted into INR at prevailing exchange rates.

NRIs who do not wish to convert their foreign earnings into INR can consider opening FCNR or RFC bank accounts. If you’re confused between the two, here are some of their most significant differences to help you choose-

  1. Account Purpose

A Foreign Currency Non-Resident or FCNR bank account is for NRIs who want to park their foreign earnings in India without converting it into INR. It is for NRIs who are currently living in foreign countries.

But what if you’re about to return to India and want to bring a considerable amount of your foreign earnings that you do not wish to convert into INR? You can consider opening a Resident Foreign Currency or RFC bank account in such cases. This account is exclusively created for NRIs returning to India for permanent or temporary settlement.

  1. Account Types

FCNR is a type of term deposit account that earns fixed interest on the investment deposited for a fixed duration. You can open it in several freely convertible foreign currencies such as USD, GBP, EUR, AUD, CAD, JPY, etc. You can open an FCNR bank account for a tenure ranging from 1 year to 5 years.

With an RFC account, you can choose from savings, current, and term deposit account. With most banks, you can open either of the RFC accounts in USD or GBP. If your foreign earnings are not in USD or GBP, it can be converted to these currencies for making a deposit into your RFC account. If you open an RFC term deposit account, the tenure option will mostly range between 1 to 3 years.

  1. Source of Fund

You can open an FCNR bank account with foreign currency notes, overseas wire transfer, currency cheque, traveller’s cheque, or even your existing NRE account. But note that withdrawals in India can only be in INR.

If you want to open an RFC bank account, you can open it with the foreign earnings you might have deposited in a foreign bank account. Proceeds from selling immovable property abroad can also be used for opening an RFC bank account. Also, if you have an NRE or FCNR account, funds from these accounts can be transferred to your RFC bank account.

  1. Account Taxation

As the FCNR account is opened by NRIs living in a foreign country, the interest earned is tax-free in India. Moreover, funds held in this account are freely repatriable.

RFC bank accounts are also tax-exempt but only up to the duration for which the returning NRI holds his/her RNOR (Resident But Not Ordinarily Resident) or non-resident status as per the IT laws. Balance maintained in the RFC bank account is also fully repatriable.

Selecting Between FCNR and RFC Bank Accounts

Now that you know the most significant differences between FCNR and RFC bank accounts, the selection should not be difficult.

If you are an NRI living in a foreign country and want to transfer your earnings to India without converting it into INR, you can consider opening an FCNR bank account. If you’re planning to return to India with a significant amount of foreign income that you do not wish to convert into INR, an RFC bank account can be an ideal choice.