FCNR vs US Treasuries: Where should an NRI park $100,000?

For a Non-Resident Indian (NRI) with $100,000 sitting abroad, the choice is no longer simply about which investment offers the higher interest rate. An Indian FCNR deposit can currently offer around 6 to 7 percent in US dollars, well above US Treasury yields. But the higher return comes with a trade-off: a longer lock-in, lower liquidity and exposure to an Indian bank.

So, should an NRI lock the money into an Indian FCNR deposit or keep it in US Treasuries? The answer depends on four things, which include, currency expectations, tax residency, liquidity needs and how long the money can be locked away.

Until August 31, 2026, major Indian banks are offering roughly 6-7 percent on 3–5-year USD FCNR(B) deposits, while US Treasuries yield about 4.18 percent for 2-year paper, 4.65–4.72 percent for 10-year paper and 5.24–5.31 percent for 30-year bonds.

FCNR vs US Treasuries: What does $100,000 earn?

If you look only at the headline yield, FCNR has a clear advantage.

FCNR (USD): You earn around 6-7 percent in dollars, without INR conversion risk while the deposit remains in USD.

US Treasuries: You can ladder 2–10-year securities at roughly 4.2–4.7 percent, or go long with 30-year Treasuries yielding around 5.2–5.3 percent.

But the currency outlook can change the equation.

"If you expect the rupee to depreciate significantly over 3–5 years and plan to spend in INR later, FCNR can be attractive because you can convert at maturity into a potentially weaker rupee, effectively boosting INR returns," said Madhupam Krishna, a SEBI-registered investment adviser and founder of WealthWisher Financial Planners and Advisors.

"If you expect USD to stay strong or you’ll invest in US Treasuries offering lower returns, but very safe yield. This will also help avoid India-specific execution, regulatory frictions and tax-related paperwork," added Krishna.

In other words, an NRI who ultimately expects to spend the money in India may find the FCNR proposition more attractive, particularly if the rupee weakens against the dollar.

Are FCNR deposits safer than US Treasuries?

Risk-wise, both are considered very low-risk instruments, but they are not identical.

An FCNR is a bank deposit, while a US Treasury is a direct obligation of the US government. FCNR deposits are covered under the Indian banking and deposit-insurance framework, subject to applicable limits, while US Treasuries are backed by the US government.

Tax residency can make a significant difference to the final return.

In India, interest on FCNR(B) deposits is generally tax-free for non-resident account holders, provided the account complies with FEMA/RBI rules. Interest from US Treasuries, meanwhile, may have different tax treatment depending on the investor's residential status and DTAA position.

"For a US-based NRI, FCNR deposits are a very attractive commodity right now because you are getting around 6-7 percent in USD, which is quite a bit higher than US Treasuries (which is around 4 percent), without taking any rupee depreciation. The interest is also exempt from tax in India as long as the NRI continues to qualify for the exemption. However, if the NRI is a US tax resident, the FCNR interest would generally still be taxable in the US. In contrast, treasury interest is only taxable federally and is exempt from state and local income taxes," explained Adithya Reddy, Senior Associate, PwC Canada.

"Under US tax, as a non-resident alien, US Treasury interest is usually exempt from US federal income tax, but you must ensure correct W-8BEN filing and consider any state-level nuances. FCNR interest earned outside the US is generally not US-sourced," said Krishna.

Therefore, for an NRI who is not a US tax resident, the Indian tax exemption on FCNR interest can make a 6-7 percent USD deposit more attractive on an after-tax basis than a Treasury yielding 4.6–5.3 percent.

Viram Shah, Founder and CEO, Vested Finance, said, "The 6-7 percent is for three to five year deposits under the RBI window. Shorter FCNR tenors are around 4 percent, roughly what a one-year Treasury pays. Once you match tenor, you are being offered a couple of hundred basis points extra, and that is payment for a long lock-in and for Indian bank credit instead of US sovereign credit. What usually settles it is where you pay tax. In the UAE that spread holds up. For a US taxpayer, most of it goes away."

Which is more liquid: FCNR or US Treasuries?

This is where Treasuries have a clear edge.

US Treasuries can be sold in the secondary market before maturity. An investor can therefore respond if interest rates rise, cash is needed, or a better investment opportunity emerges.

FCNR deposits, on the other hand, generally involve a longer commitment.

"The higher return on FCNR comes with a trade-off. Most of these higher rates are on 3 to 5 year deposits, with a 1 year lock-in period and bank specific rules and penalties if you want to withdraw early after that," said Reddy.

"US Treasuries, on the other hand, are far more liquid; you can hold short-term T-bills or longer-term notes and sell them before maturity if required. There is also a difference in credit risk. An FCNR is ultimately a deposit with an Indian bank, and DICGC insurance is limited to Rs 5 lakh per depositor per bank, whereas US Treasuries are backed by the US government," added Reddy.

Treasuries also give investors greater flexibility to manage duration through ladders, barbells and other strategies if US interest rates change.

Also read: Rising US yields: Is the bond market signalling trouble ahead and should Indian debt investors worry?

So, should an NRI choose FCNR or US Treasuries?

FCNR may suit an NRI who wants a higher USD yield, can lock away the money for 3–5 years and expects to eventually spend the money in India.

"For NRIs who are also subject to US filing obligations, there is an additional compliance angle as well. A $100,000 FCNR deposit would cross the $10,000 aggregate threshold for FBAR (Report of Foreign Bank and Financial Accounts) reporting, and Form 8938 may also apply depending on the individual's filing status and residence, usually applying to specific individuals with specified foreign financial assets," said Reddy.

"So I would not look at this simply as 7 percent versus 4 percent. If liquidity and capital stability is more important, Treasuries may make more sense. If the money can genuinely be locked away for 3 to 5 years and the NRI is comfortable with the bank risk and additional reporting, FCNR can be a very attractive option at the current rates," he added.

Additionally, Krishna said, "US Treasuries may be preferred if you prioritise liquidity, want to manage duration actively, or believe USD yields may rise further. They also suit those who want minimal India-specific operational exposure."

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