FCNR (B) Deposit Rates Hit 7.1% after RBI Opens Swap Window

The Reserve Bank of India announced on June 8, 2026 that it will run a special swap facility for FCNR(B) deposits (Foreign Currency Non-Resident Bank deposits), allowing banks to offer significantly higher interest rates to NRI depositors. Banks moved quickly. AU Small Finance Bank raised its USD FCNR(B) rate from 5.15% to 7.10%. HDFC Bank, ICICI Bank, and Axis Bank are now offering 6% on three to five year dollar deposits, up from around 3-4% before.

If you have dollars sitting in a US savings account and you want to earn more on them, this is worth your attention. This article explains what the RBI did, how the swap mechanism works, which banks are offering what, and what US-based NRIs need to know about US tax before they open an account.

What the RBI announced on June 8, 2026

The RBI issued a circular on June 8, 2026 allowing authorized dealer banks to raise fresh FCNR(B) deposits and swap the dollar proceeds directly with the central bank.

Here is how it works. A bank accepts USD from an NRI as an FCNR(B) deposit. It then sells those dollars to the RBI and receives rupees in return, at the FBIL (Financial Benchmarks India Limited) reference rate. When the deposit matures, the transaction reverses. The bank buys back the same amount of dollars from the RBI at the same exchange rate it originally used. This is called a par swap.

Because the exchange rate is fixed at both ends, the bank does not lose money if the rupee weakens over the deposit period. The RBI takes on that currency risk instead. Before this window opened, banks had to buy currency hedges from the market at a cost of roughly 3.5% per year. That cost reduced the interest rate they could offer NRI depositors. With the RBI now absorbing that expense, banks can pass the savings to you in the form of higher rates.

The RBI also granted CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio) exemptions on eligible deposits. Normally banks must hold a portion of every deposit as a reserve with the central bank, which reduces the funds they can lend. The exemption removes that obligation for these specific FCNR(B) deposits, making it even cheaper for banks to take them in.

Rates are indicative as of June 11, 2026. SBI rates shown for deposits up to $1 million. Confirm current rates with your bank before opening a deposit, as they may change.

Key terms of the scheme:

• Deposits must be opened between June 8 and September 30, 2026.
• Banks can access the RBI swap facility until October 16, 2026.
• Deposits carry a one-year lock-in from the date of opening.
• After one year, banks may allow premature withdrawal based on their internal policy.
• Swaps already executed with the RBI cannot be cancelled, even if a depositor withdraws early.

How the swap window works

The mechanics in plain language

Before this facility, banks that took in dollar deposits from NRIs faced a problem. They received dollars, but most of their lending is in rupees. So they converted the dollars to rupees and put them to work. The issue was that when the deposit matured three or five years later, they had to hand back dollars to the depositor. If the rupee had weakened in the meantime, converting rupees back to dollars would cost them more than they earned. To protect against this, banks bought private currency hedges, which cost around 3.5% per year and reduced what they could offer depositors.

Under the new window, the RBI steps in as the counterparty. The bank sells dollars to the RBI and gets rupees. At maturity, it buys those dollars back at the original rate. The currency risk sits with the RBI, not the bank. With that 3.5% hedging cost removed, banks have room to offer you rates that are 150 to 200 basis points higher.

How 2026 compares to 2013

This is not the first time RBI has used this tool. In 2013, a sharp fall in the rupee and a large current account deficit created a foreign exchange crisis. RBI ran a similar FCNR(B) swap window and banks raised roughly $26 billion in fresh FCNR deposits within a few months, helping stabilize the rupee and rebuild India's foreign exchange reserves.

The conditions in 2026 are different. US Treasury yields are currently around 4.5%, which narrows the interest rate advantage India can offer. In 2013, US rates were near zero, so any Indian rate looked attractive by comparison. Today the math is tighter, though banks offering 7.1% still outpace most US money market accounts and Treasury bills. Analysts estimate the combined RBI measures could attract $40 to $60 billion in foreign currency inflows by September 2026, though FCNR deposits alone are unlikely to match the 2013 figure given the narrower rate differential.

How this affects you as an NRI

Higher dollar returns with no currency risk

FCNR(B) deposits are maintained in foreign currency. If you open a USD FCNR(B) account, both your principal and the interest you earn are denominated in dollars. When the deposit matures, you receive dollars back. You do not convert to rupees and back again. There is no exchange rate risk on your money.

This makes FCNR(B) different from NRE fixed deposits, which are rupee deposits. If the rupee falls between the time you open and close an NRE FD, your dollar returns are smaller. With FCNR(B), that risk does not exist. If you are weighing NRE vs NRO vs FCNR accounts, the currency protection is the main reason most US-based NRIs prefer FCNR over NRE for long-term dollar savings.

At the current rates, a 5-year FCNR(B) deposit at 6% on a $50,000 deposit earns $3,000 in the first year in the US HYSA at 4.8% earns $2,400. A $600 annual difference on $50,000, before considering taxes, is not trivial.

The lock-in you need to plan for

Any deposit opened under the swap window scheme comes with a one-year lock-in. You cannot touch the principal for the first twelve months from the date you open the deposit. After twelve months, your bank may allow early withdrawal, but it will likely apply a penalty. The size of that penalty varies by bank, so check your bank's specific policy before you commit.

The deposits you are opening also run for three to five years. If your financial situation changes and you need the dollars back in 18 or 24 months, you will face an early withdrawal charge. Plan your liquidity needs before you lock money in.

What US-based NRIs must know about US tax

This is the angle that most news coverage on the RBI swap window skips entirely, and it matters a lot if you live in the US.

FCNR(B) interest is fully exempt from Indian income tax while you hold NRI status. No TDS (Tax Deducted at Source) applies either. But the IRS does not care that India exempts this income. If you are a US person, which includes US citizens, green card holders, and H-1B or other visa holders who meet the substantial presence test, the interest on your FCNR deposit is taxable in the US every year.

The US taxes this income on an accrual basis. That means you owe US income tax on each year's interest, even if you have not withdrawn anything. You cannot defer it to maturity. A full explanation of how Indian fixed deposits are taxed in the US walks through the mechanics in detail.

You also have a reporting obligation. FBAR (Report of Foreign Bank and Financial Accounts) requires you to report any foreign financial account if your combined foreign account balances exceed $10,000 at any point during the year. FBAR is filed with FinCEN, not the IRS, by April 15 each year, with an automatic extension to October 15. A guide on FBAR filing requirements for NRIs covers the full process.

Separately, FATCA Form 8938 may apply if your total foreign financial assets exceed $50,000 at year-end or $75,000 at any point in the year (for single filers living in the US). FBAR and Form 8938 are different filings with different deadlines and penalties. A missed FBAR can cost $10,000 per violation for a first offense.

A concrete example: Rahul lives in New Jersey on an H-1B visa. He has $50,000 in a US high-yield savings account earning 4.8% annually, or $2,400 per year. He moves the money to a 5-year FCNR(B) deposit at HDFC Bank at 6%, earning $3,000 per year. In India, that $3,000 is tax-free. In the US, it is taxable. Rahul is in the 22% federal bracket, so he pays $660 in US federal income tax on that interest. His effective after-tax return is $2,340, or about 4.68%. The FCNR still beats his US savings account by around $60 per year per $50,000, but the gap is much smaller than the headline rate suggests.

What you should do now

1. Check the current FCNR(B) rate at your bank. The rates in the table above are from June 11, 2026. Banks may change them further. Log in to your bank's NRI portal or call the NRI helpline to confirm what your bank is currently offering before you open an account.
2. Calculate your real after-tax return. Take the FCNR rate your bank offers. Subtract your US federal and state income tax on the interest. Then compare that number to what your current US savings or money market account earns. For most people in mid-to-upper income brackets, the after-tax advantage exists but is smaller than the headline rate.
3. Open an FCNR account before September 30, 2026. The RBI swap facility and the CRR/SLR exemption both expire for deposits opened after September 30. If you plan to take advantage of this window, do not wait until late September. Banks may also fill their allocation or adjust rates before the deadline.
4. Include the account in your FBAR filing. If your combined foreign account balances already exceed $10,000, you are already filing FBAR. Just add the new FCNR account to next year's FBAR. If this would be your first foreign account above the threshold, make sure you understand the filing requirement before you open it.
5. Talk to a cross-border financial advisor. The decision to move dollars to India involves your US tax situation, your India financial goals, and your liquidity needs over the next three to five years. A financial advisor who understands both US and India rules can help you run the right numbers for your specific situation.

Conclusion

The RBI's June 2026 swap window has made FCNR B deposits more attractive than they have been in years, with USD rates ranging from 6% to 7.1% at major banks. The deposits offer dollar-denominated returns with no currency risk and zero India tax while you hold NRI status.

If you have dollars you can set aside for at least one year, this window, open until September 30, 2026, is worth acting on quickly. US-based NRIs should run the after-tax numbers before committing, since US income tax on FCNR interest narrows the advantage over domestic US savings.