Anshul Sharma

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FCNR deposit rates are offered by Indian banks to Non-Resident Indians (NRIs), on depositing their international earnings in a fixed deposit account in India. The rates are quoted per annum and fixed at the time of booking. These deposits provide a safe and practical way to grow overseas income while enjoying tax benefits. They are accessible in key currencies including USD, GBP, EUR, CAD, AUD, JPY and others.

According to the current Reserve Bank of India (RBI) regulations, FCNR deposits can be opened for a minimum tenure of 1 year and a maximum tenure of 5 years. Banks are not allowed to accept or renew FCNR deposits for a period exceeding 5 years.

<a></a>What are the Key Features and Benefits of FCNR Deposits?

Tax-free interest earnings, complete repatriability of principal and interest and protection against changes in currency exchange rates are some of the benefits of FCNR fixed deposits in India. Here is a detailed list of features and benefits of FCNR deposits in India:

<a></a>What are the Current FCNR Interest Rates Across Major Banks in India?

You can make an FCNR deposit rate comparison to choose the right bank for your deposits. Here are the current FCNR deposit rates of major banks for different currencies, including USD, GBP, EUR, CAD, AUD, JPY, and SGD:

<a></a> Kotak Mahindra Bank FCNR Deposit Rates

<a></a>Bank of Baroda FCNR Deposit Rates

<a></a>IDFC First Bank FCNR Deposit Rates

<a></a>Which Bank Offers the Highest FCNR Deposit Rates in India?

Currently, Bank of Baroda is offering the highest FCNR deposit interest rate of 5% on USD deposits for a tenure of 1 to 2 years in comparison to other major Indian banks. IndusInd Bank and IDFC FIRST Bank also provide competitive FCNR deposit rates for select currencies and tenures.

<a></a>How are FCNR Deposit Rates Calculated?

FCNR deposit interest is worked out on a 360-day year rather than the usual 365. This is just the day-count convention banks use for these foreign-currency deposits: each year is treated as 360 days (twelve 30-day months) when calculating how much interest you have earned. It is an international money-market standard, not something that reduces your return in any meaningful way.

The interest is compounded every 180 days, that is, twice a year. Compounding means that at the end of each 180-day period, the interest you have earned is added to your principal, and the next period's interest is then calculated on this larger amount. So your interest earns interest, and the deposit grows a little faster than it would with simple interest. (For deposits of one year or less, interest is simple and not compounded; compounding applies to longer tenures.)

Beyond the day-count method, the rate itself is set by the bank based on its own pricing rules, the tenure, the deposit currency, and global benchmark rates.

The interest rate cannot be changed in the middle of the term. It is fixed at the time of booking, so your funds are protected from market movement.

FCNR(B) deposit rates are subject to strict ceilings set by the RBI, and Indian banks are not allowed to offer rates above these limits. The ceilings are tied to international benchmark rates (the Overnight Alternative Reference Rate, such as SOFR for US dollars), plus a small margin.

<a></a>How to Choose the Best FCNR Deposit Rate?

To choose the best FCNR deposit rate, pick the currency that matches your income source, select a tenure that fits when you will need the money, and compare the spread each bank offers above the international benchmark rate. The factors below explain each of these in turn.

<a></a>Currency That Aligns with Your Income Source

You may save money in any currency, but be sure it fits your financial objectives. Additionally, see if the interest rates are reasonable for the currency of your choosing.

<a></a>Tenure Aligns with Your Repatriation Plans

The best FCNR tenure will depend on when you might need access to your funds. If you are going to repatriate money overseas in 1-2 years, you may want a shorter tenure for more flexibility.

FCNR deposit rates are usually influenced by international benchmark rates such as the USD's SOFR or the GBP's SONIA. Before you invest, check the extra return the bank is offering above current benchmark rates.

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An FCNR (Foreign Currency Non-Resident) account is a fixed deposit account that allows NRIs to hold their savings in designated foreign currencies with an Indian bank. Since the deposit is maintained in foreign currency, both the principal and interest remain protected from fluctuations in the Indian Rupee during the deposit tenure.

The funds in this account, along with the interest earned, are tax-free in India, similar to a Non-Resident External (NRE) bank account. Banks also allow transfers between FCNR (B) and NRE accounts, providing flexibility in managing your NRI savings. The amount will be converted into the chosen foreign currency based on the bank’s prevailing exchange rates.

Commonly accepted currencies include Australian dollars (A$), British pounds (£), Canadian dollars (C$), euros (€), Japanese yen (¥), and US dollars ($). However, banks may accept FCNR (B) deposits in any freely convertible currency, subject to current Foreign Exchange Management Act (FEMA) regulations.

<a></a>What are the Key Features of an FCNR Account?

An FCNR (B) account comes with several notable features, including full repatriation of principal and interest, fixed-tenure deposits in foreign currency and the ability to avail loans or overdrafts against the deposit.

Here is a detailed understanding of these key features:

Instead of being used for ordinary savings, FCNR accounts are intended for fixed-term deposits. This implies that you commit your money for a predetermined amount of time, often 1 to 5 years. Premature withdrawals are possible, but they may result in penalties and interest is usually only paid after a minimum of a year.

You do not have to pay tax on the interest earned from FCNR deposits. This tax-free status allows you to grow your savings and make investments independently while living abroad.

You can avail a loan or overdraft against your FCNR account. It allows you to access funds without prematurely withdrawing your investment. This provides liquidity while your deposit continues to earn interest.

As per FEMA regulations, Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) with foreign currency earnings can open an FCNR account. It is designed for those who wish to invest in India without<a href="https://www.skydo.com/blog/currency-conversion-fees"> currency conversion </a>while enjoying full repatriation benefits.

However, resident Indians are not eligible to open an FCNR account. An FCNR deposit can only be funded using eligible foreign currency funds, such as overseas remittances or transfers from an NRE account. Domestic savings maintained in India are not permitted as a funding source.

<a></a>What are the Benefits of an FCNR Account?

The key benefits of an FCNR account include tax-free returns, the flexibility to hold deposits in foreign currency, multiple tenure options and competitive interest rates. Here is a detailed overview of the benefits of an FCNR account:

<a></a>What Are the Drawbacks of an FCNR Account?

While FCNR accounts offer several benefits, they also come with certain limitations, such as premature withdrawal penalties, funding restrictions, a limited tenure range, and potential currency conversion risk at the time of repatriation or withdrawal. Here is a detailed guide:

<a></a>FCNR vs NRE vs NRO: Differences and Similarities

The table below compares the FCNR account, NRE account, and NRO account:

You can open an FCNR (B) account in person at your local branch or online using mobile or internet banking. Follow the steps below to open an FCNR account online:

<a></a>Choose a Bank and Compare Deposit Options

Start by comparing FCNR deposit rates and tenure options across different banks. Since interest rates vary by bank and currency, selecting the right option can help maximise your returns while meeting your financial goals.

Choose the foreign currency in which you want to hold the deposit and specify the amount you wish to invest. The applicable interest rate will be locked in when the deposit is booked.

Gather the documents required by the bank, such as your passport, a valid visa or residence permit, overseas address proof, PAN card, and any other documents requested for KYC verification.

<a></a>Apply Online or Through a Branch Visit

Most banks allow NRIs to open FCNR deposits online through internet banking or their mobile banking app. You can also open the account by visiting the nearest branch. Review the deposit details carefully before submitting the application.

Once the application is processed, the bank will issue a deposit confirmation. You can then manage the deposit through the bank's online or mobile banking platform.

<a></a>What Documents Are Required to Open an FCNR Account?

To open an FCNR account, you need to submit documents for tax compliance and identity verification. Here is the list of common documents that are required:

<a></a>What Happens to Your FCNR Account When You Return to India?

When an NRI returns and becomes a resident Indian under <a href="https://www.skydo.com/blog/fema-foreign-exchange-management-act">FEMA</a>, the rules for FCNR account change and the account cannot continue indefinitely in the same way. Let us break them down:

Holding option: Existing FCNR deposits can be held until maturity even after returning to India. However, once the depositor becomes a resident, the interest earned thereafter is taxable in India.

Post-maturity conversion: On maturity, FCNR deposits are typically converted into a Resident Foreign Currency (RFC) account or a standard resident fixed deposit, as applicable.

Notification obligation: Depositor must notify the bank about the change in residency status.

Suppose you open an FCNR deposit of $50,000 for 3 years at a fixed interest rate, but you return to India after 2 years and become a resident. In this case, you do not need to break the deposit immediately.

The FCNR account can continue until maturity. During the remaining 1 year, it may continue to earn interest as per applicable rules, but its residential status will be updated. On maturity, the principal plus interest is converted into INR or transferred into a RFC account.

Modernize the Core: Your B2B Payments Strategy Reset

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A remit payment refers to the transfer of money from a payer to a payee to settle an invoice, bill, or other financial obligation. You may also come across related terms such as remittance, wire transfer, and fund transfer.

While these are often used interchangeably, they carry slightly different meanings: a remittance is a broad term for money sent from one party to another, particularly in international transactions; a wire transfer is an electronic transfer of funds between banks; and a fund transfer is a more general term covering any movement of money between accounts or parties.

It is also important to understand how “remit” is used in different situations. On an invoice, terms such as “please remit payment to” indicate that the client should send money to the receiver’s bank account. Whereas in the context of banking, it means that money has been transferred.

A remit payment works by transferring money from the sender's bank account to the recipient's bank account to settle an invoice or obligation. For domestic transfers this is usually direct, while for <a href="https://www.skydo.com/blog/what-are-cross-border-payments-and-how-skydo-can-help-you-receive-them">cross-border payments</a> the funds may pass through one or more intermediary banks before reaching the recipient. The process typically follows these steps:

The sender initiates the payment:&nbsp;The client sends the payment using the bank details provided on your invoice.

The sender's bank processes the payment: The sender's bank deducts the amount from the client's account and starts the transfer.

The payment moves between banks: For international payments, the money may pass through one or more intermediary banks before reaching your bank. These banks help transfer funds between countries when the sender's bank and recipient's bank are not directly connected.

Your bank receives the payment: Once the funds reach your bank, the payment is reviewed and prepared for credit to your account.

The money is credited to your account: After processing is complete, the funds are deposited into your account.

The amount credited to your account may not always match the amount sent by the payer. This is because fees can be charged by the banks involved in the transfer, and currency conversion may also affect the final amount received. How these fees are deducted depends on the charge type selected by the sender:

In addition to bank fees, foreign exchange conversion may also affect the final amount received. Banks and payment providers may apply a markup to the exchange rate when converting one currency into another.

The time it takes for a remit payment to arrive depends on the payment method and the banks involved.

<a></a>What Should a ‘Remit to’ Section on an Invoice Include?

The ‘Remit To’ section should include the information a client needs to send payment to the correct account. Key details typically include:

Depending on the payment method or provider, additional banking details may also be required to ensure the payment is processed correctly.

Note for Indian freelancers and exporters: Purpose codes and <a href="https://www.skydo.com/blog/all-you-need-to-know-about-firc-a-complete-guide">Foreign Inward Remittance Certificate</a> (FIRC) documents are typically handled by the receiving bank after payment and are not usually included in the invoice or the ‘Remit To’ section.

Cross-border payments often get delayed due to missing or incorrect payment details. With <a href="https://www.skydo.com/">Skydo</a>, you can generate compliant invoices that include the required “Remit to” information. You also get real-time payment tracking, so you can monitor the status of your incoming payments.

<a></a>What Are Common Business Use Cases for Remit Payment?

Remit payments are common in business deals mostly in cross-border payments, where money is transferred across countries. Below are some common business use cases where remit payments are used:

These applications demonstrate how remit payment can be applied in both ways, whether one is sending or receiving a sum.

<a></a>How Much Does a Remit Payment Cost?

An international remit payment costs between 1% to 8% of the total transaction amount on average. These costs consist of three main factors: fixed transfer fees, currency exchange markups, and receiving bank charges.

Here is a breakdown of standard international remittance fees:

This is the upfront fee charged by the service provider to initiate the transfer.

<a></a>2. Foreign Exchange (Forex) Markup

This is often the largest, "hidden" cost in a remittance payment.

If you are sending money to an overseas account, the receiving bank and any intermediary banks routing the transfer may deduct a processing fee, typically between $10 to $50 (or local equivalent) from the final amount received.

Sending $5,000 USD to India using different methods:

<a></a>Factors to Consider While Choosing a Remit Payment Service

The remit payment service you choose can significantly affect how quickly and easily you receive your money. Here are the key factors to weigh:

<a></a>How Does Skydo Help You Receive Remit Payments Faster?

Skydo speeds up cross-border payments by cutting delays, reducing costs, and improving visibility through the following features:

With the right setup, receiving international payments takes far less time. Get paid faster and with less hassle through<a href="https://www.skydo.com/"> Skydo</a>.

<a></a>What Is an MT202 SWIFT Message?

MT202 is a SWIFT format message for interbank transfers only. It remains exclusively in the interbank network. Individual customers, businesses, or other non-bank entities cannot initiate, send, or receive an MT202 message. Instead, banks use it to instruct other banks to transfer funds between financial institutions rather than to a person or company.

It is generally the instruction that banks use to settle liquidity movements within themselves, i.e., between a bank's own nostro and vostro accounts. It is the infrastructure of settlement on the SWIFT network.

When an interbank transfer is linked to an underlying customer payment, banks use an MT202 COV. Unlike a standard MT202, an MT202 COV includes details of the related customer transaction while still facilitating settlement between banks.

Within the SWIFT network, MT stands for "Message Type", and 202 identifies the specific message format used for interbank fund transfers under SWIFT's legacy FIN (Financial Information) messaging system.

<a></a>MT202 vs MT103: Key Differences

MT103 and MT202 are among the most commonly discussed SWIFT message types that differ in their purpose. MT103 is used for customer payments, while MT202 is used for interbank fund transfers between financial institutions. The sections below explain the key differences.

<a></a>MT103: The Customer Transfer

The <a href="https://www.skydo.com/blog/mt103-what-is-it-why-it-matters-and-how-to-get-one">MT103</a> SWIFT message is the "Customer Credit Transfer" instruction, representing the whole payment instruction from the paying bank to the receiving bank. It involves who paid, whom to pay, references, and charges. It contains the beneficiary details, payment references, and charges. As it contains all the key transaction details, it serves as the primary document for tracing a customer payment and acts as proof that the payment instruction was sent.

<a></a>MT202: The Bank Transfer

The MT202 is the "General Financial Institution Transfer" and supports the settlement of <a href="https://www.skydo.com/blog/cross-border-payments">cross-border payments</a> by transferring funds between correspondent banks. There is no beneficiary customer data but only banking data to identify the involved institutions and amount/value date.

Below is the breakdown of what each message is communicating:

Here is a tabular version of the key differences between MT103 and MT202:

<a></a>How Does MT202 SWIFT Message Work?

An MT202 SWIFT message works by facilitating the movement of funds between banks during an international wire transfer. The process begins with an MT103 customer payment instruction, routes the funds through one or more correspondent banks using MT202 messages, and ends when the beneficiary's bank credits the recipient's account. The steps below explain the process in detail:

<a></a>MT202 SWIFT Message Example

Suppose a client in the US sends a payment to an exporter in India. If the sender's bank and the recipient's bank do not have a direct banking relationship, the payment is routed through one or more correspondent banks. In such cases, MT202 (or MT202 COV for cover payments) is exchanged between the banks to facilitate interbank settlement before the funds reach the beneficiary's bank.

Chasing SWIFT references and figuring out which message serves as proof of your payment shouldn't be your responsibility.<a href="https://www.skydo.com/"> Skydo </a>gives Indian freelancers and exporters real-time payment tracking, automatic FIRA documentation, and flat-fee pricing, so you know exactly when your money lands and what it costs. No RM calls. No SWIFT copy chasing!

<a></a>MT202 SWIFT Message Format

The specific details of the SWIFT MT202 fields are set out within Block 4 (Text Block) of the SWIFT message envelope. There are other blocks comprising an envelope, way for routing and security information, but the core message carrying the payment information between banks is contained in Block 4.

Below are the SWIFT MT202 format specifications for Block 4:

M = Mandatory, O = Optional. Network validated rules may apply to optional fields depending on the scenario.

A few fields worth highlighting for Indian exporters:

<a></a>MT202 vs MT202 COV: Differences &amp; Why We Need Them Both

One of the most important and frequently misunderstood distinctions in SWIFT messaging for cross-border payments is the difference between MT202 and MT202 COV.

<a></a>MT202 (Standalone)

A standard MT202 is purely intended for interbank transactions, forex deals, bank private business, and treasury activities with absolutely no retail participation. Given that the consumer funds are not directly at risk, this message requires only the participating banking institutions as both the sender and the receiver identities.

<a></a>MT202 COV (Cover Payment)

An MT202 COV ("cover") is included when a bank-to-bank payment represents payment in respect of underlying customer payments (MT103). If a client payment is processed using correspondent banking structures and a "cover" arrangement is used, the additional message would be an MT202 COV and not a standard MT202 message.

Unlike a standard MT202 message, an MT202 COV includes a mandatory Sequence B block that carries:

Conceptually, an MT202 COV can be thought of as:

Standard MT202 + Customer Information from the Related MT103 = MT202 COV.

This distinction was introduced in 2009 following the FATF (Financial Action Task Force) recommendations aimed at strengthening anti-money laundering (AML) compliance in correspondent banking. Under these requirements, customer information must accompany the payment throughout the correspondent banking chain rather than remain only with the originating bank.

If your overseas customer makes a payment using the cover payment method, an MT202 COV helps transmit your details through the correspondent banking network. This allows the required customer information to accompany the payment in compliance with AML regulations, even though you never see the message.

<a></a>How Does Skydo Simplify Cross-Border Payments?

For the vast majority of Indian freelancers and exporters, the complications of MT202, MT103, and correspondent banking chains are just static in the background. However, their impact is evident in the form of delayed settlements, unexpected fee deductions, limited payment visibility, and compliance documentation requirements.

This is where Skydo makes a difference. It simplifies cross-border payments by addressing the common challenges associated with traditional banking in several ways:

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ACH (Automated Clearing House) is a U.S. Electronic batch payment network operated by <a href="https://www.nacha.org/content/how-ach-payments-work">Nacha</a>, formerly the National Automated Clearing House Association. Unlike wire transfers, ACH payments are not processed in real time. The payment batch process usually takes several days to settle.

ACH returns happen if an ACH payment fails to transmit for some reason. The Receiving Depository Financial Institution (RDFI), in most cases, is the bank that is trying to process a payment into a recipient’s bank account. If it identifies a problem, it sends the ACH payment back to the originating bank with a return code explaining the reason for the failure.

The transaction acts like a bounced electronic check, where funds are temporarily visible before being reversed. It is easy to confuse an <a href="https://www.skydo.com/blog/everything-about-ach-payments">ACH return</a> with other payment reversals, but three distinct terms matter most here:

When an ACH payment fails to transact, the recipient’s bank assigns a common error code for each failed payment so you can see whether the problem is a typo, a coding glitch, or a cash shortage at your customer’s end.

Here are the most common causes of ACH returns based on Nacha classifications:

As for other return codes, standard codes R01-R04 and R09 have 2 days to clear. Unauthorised return codes (R05, R07 and R10) have a much longer settlement window of 60 days for consumer accounts.

Nacha identifies failed transfers by using 3 standardised character codes, the letter "R" and two numbers, across all U.S. Banks. Also, an addenda record is attached to the return that provides information regarding the transaction.

<a></a>The 10 Most Frequent ACH Return Codes

The codes range from R00 to R82 (more than 80 in all), but the top 10 that are seen in business practices are as follows:

Reference: Standard returns take 1-2 banking business days to be handled from the settlement of payment, while Extended (unauthorised) consumer returns may take up to 60 calendar days. Refer to the <a href="https://www.nacha.org/">Nacha Operating Rules</a> for the transaction code's time frame.

<a></a>Return Codes That Signal Fraud or Dispute

Some ACH return codes go beyond payment failures and may indicate disputes, fraud claims, or regulatory issues.

ACH returns must also follow specific timelines, which vary depending on the reason for the return.

<a></a>How Does the ACH Return Process Work?

The ACH return process works by cycling a failed payment backward through the bank networks, from the receiving bank that flags the problem back to the originating bank that started it. Here is how each step plays out:

The customer sends ACH payment instructions to their bank (the Originating Bank, ODFI), which then transmits the transaction data into the ACH network.

The ACH Operator validates protocols and routes them to the destination bank (RDFI), where data is received into the bank system.

RDFI detects the error, such as a low balance or the account being closed and creates a return code.

The client is informed by the ODFI of the failed payment. Financial institutions and processors charge a wide range of fees in accordance with their policies.

If the account information is wrong, the RDFI might return an NOC so the originator can correct the entry.

Nacha permits two retries per entry. Only entries with R01 and R09 codes can be re-presented if initially rejected due to an invalid return.

<a></a>How Do ACH Returns Affect Indian Businesses?

The US ACH network will not directly route to Indian accounts. When a failure occurs, it leads cross-border businesses into platform clawbacks, lengthy information dead zones and serious compliance risk. Some complications include:

<a></a>ACH Return vs ACH Reversal: What Is the Difference?

An ACH return is automatically issued by the bank that would process the money if something goes wrong, such as insufficient funds, the account has been closed, etc. Whereas, ACH reversal is the sender manually asking to get funds back because of administrative mistakes, such as accidentally sending a duplicate payment or sending the wrong amount. However, there is no guarantee the money will be returned if it has already been withdrawn from the account.

The table below clarifies the key differences:

Note: ACH returns and ACH reversals are different from credit or debit card chargebacks. Chargebacks are part of card payment networks and do not apply to ACH transactions.

While ACH cancellation is different from both. It is an attempt to stop an ACH transaction before it is processed or settled. Once the transaction has entered the ACH clearing process, it generally cannot be cancelled through a formal Nacha process.

ACH returns and ACH reversals are also different from chargebacks, which apply only to card payments and not to ACH transactions.

<a></a>Returning vs Cancelling an ACH Payment: Key Difference

The defining feature distinguishing the two acts is settlement. Cancellations occur before the monetary transfer, while returns occur post-payment.

<a></a>How Does Skydo Protect You From ACH Return Risks?

ACH returns are painful for one reason: a payment you thought had landed can quietly reverse days later, and with traditional banks or platforms you often have no visibility until it is too late. <a href="https://www.skydo.com/">Skydo</a> removes that risk at the source. Skydo makes it simpler with dedicated USD, GBP, EUR, SGD, AUD and CAD virtual accounts specifically for Indian exporters that are RBI-authorised PA-CB.

If your US-based client uses a wire transfer to send funds directly to your Skydo USD account, the transaction is not subject to ACH return rules. In other words, once a wire is received, it does not have the same risk of reversal.

Apart from the payment method, Skydo is also the solution to the opacity issue that costs a lot in the event of ACH returns. Here is how Skydo helps: