Foreign Currency Non-Resident (Bank)- FCNR (B)- and Non-Resident External (NRE) deposits are two prominent investment options for Non-resident Indians (NRIs), Overseas Citizens of India (OCIs) and Persons of Indian Origin (PIOs) to invest funds in India and earn interest. Both offer tax benefits to their investors and the maturity amount is fully repatriable. They have many common things yet there are some differences. While FCNR (B) allows them to invest and withdraw in foreign currencies, including the US dollar, NRE deposits and withdrawals are made in Indian rupee. FCNR(B) deposits provide zero currency risk to its investors. In NRE depositors carry currency risk and if the value of rupee depreciates, their earnings from interest are impacted. But there may also be occasions when NRE depositors are likely to have a higher maturity amount compared to FCNR(B) depositors even at the same investment amount and the interest rate.Also Read: How NRIs, OCIs can get 45% annual return on $1 lakh FCNR (B) deposit as this bank in India offers 19X leverage; Should you go for it? Tanvi Kanchan, associate director, Anand Rathi Shares & Stock Brokers, in her two-step calculations shows how NRE depositors can earn higher amount on a 5-year FD of 7% interest rate compared to an FCNR(B) FD of the same tenure and the interest rate. FCNR(B) vs NRE FD: What will be maturity on $50,000 deposit in 5-year FDs? For calculation purposes, Kanchan took $50,000 investment for FCNR(B) and Rs 47 lakh ($1= Rs 94, $50,000= Rs 47 lakh) for NRE. At a 7% interest for 5 years, maturity amounts in both will be: Parameter FCNR(B) Deposit NRE Fixed Deposit Deposit Currency USD (stays in USD throughout) INR (converted at INR 94/USD) Principal Invested USD 50,000 INR 47,00,000 Interest Rate 7.00% p.a. (USD rate) 7.00% p.a. (INR rate) Compounding Half-yearly Quarterly Tenure 5 years 5 years Maturity Value USD 70,530 INR 66,49,457 Interest Earned USD 20,530 INR 19,49,457 USD Value at Maturity USD 70,530 (fixed) Depends on USD/INR exchange rate at maturity Source: Tanvi KanchanTill this stage, you can see the winner among the two depositors will depend on the value of rupee at maturity. If for five years, the value of the rupee against the US dollar stays the same, which is highly unlikely, NRE depositors can earn a higher amount because of a higher frequency of compounding compared to FCNR(B).Also Read: 8th Pay Commission salary calculator: Why Level 11-18 employees may see just 68% gross salary hike even at 2.57 fitment factorIf the value of rupee depreciates, FCNR(B) depositors can earn more. But if the value of rupee strengthens against the US dollar, the value of NRE depositors’ maturity can be more. Here’s how! Scenario INR/USD at Maturity NRE FD – USD Value FCNR(B) Deposit – USD Value Rupee depreciates INR 98.00 USD 67,852 USD 70,530 Rupee stays flat (no movement) INR 94.00 USD 70,739 USD 70,530 Rupee appreciates INR 90.00 USD 73,883 USD 70,530 Source: Tanvi KanchanThe expert calculations show that if the value of the Indian rupee strengthens against the US dollar, an NRE depositor can earn an extra amount equal to $3,353. However, the possibility of such a scenario is much less as Kanchan says that over the past decade, the rupee has depreciated at a compounded rate of approximately 3% per year against the dollar. Nevertheless, calculations illustrate that even an NRE depositor can earn a higher maturity amount compared to an FCNR (B) depositor depending if the rupee exchange rate remains the same. Ankit Bagadia, director, business, BankBazaar, explains conditions when FCNR (B) and NRE can be a better choice. When can an FCNR (B) deposits a better choice for NRIs, OCIs and PIOs? FCNR(B) deposits are generally better suited for NRIs who want to retain exposure to a foreign currency and avoid currency conversion risk. Since both the principal and interest remain denominated in the chosen foreign currency throughout the tenure, the depositor is protected from rupee depreciation. FCNR(B) deposits can be particularly relevant for NRIs who expect to use the funds overseas in the future or prefer certainty around the value of their investment in foreign currency terms. They are also attractive during periods of heightened currency volatility when preserving foreign currency value becomes an important consideration. When can an NRE deposits a better choice for NRIs, OCIs and PIOs? An NRE FD may be more suitable for NRIs who have a positive outlook on the Indian economy and the rupee over the long term, or who expect to use the funds in India eventually. NRE FDs are denominated in rupees and typically offer higher nominal interest rates than FCNR(B) deposits. However, the eventual return for an NRI also depends on currency movements. If the rupee remains stable or appreciates against the depositor's home currency, NRE FDs can potentially generate higher overall returns. They may also be preferred by NRIs who have regular financial commitments in India and are comfortable taking on some currency exposure. Which account protects against rupee depreciation- FCNR(B) or NRE? FCNR(B) deposits provide direct protection against rupee depreciation because both the principal and interest remain denominated in the chosen foreign currency. In contrast, NRE fixed deposits are denominated in rupees, which means the final return in foreign currency terms can be influenced by exchange rate movements. If we talk about the current scenario, FCNR(B) are offering high interest rates to their depositors and appear to be more attractive compared to NRE deposits. However, when interest rates of FCNR(B) deposits go down, they may lose their sheen and NRE deposits will have an edge.