FCNR vs NRE vs RFC: where to keep dollars when you move back.

An NRE account is a rupee account for money earned abroad, open only while you are non-resident. An FCNR(B) deposit is a fixed-term deposit held in a foreign currency, also for non-residents. An RFC account is a foreign currency account for someone who has returned to India to stay, so it is the one built for returnees.

The three answer different questions. NRE answers "where do I keep my foreign earnings in rupees while I live abroad". FCNR answers "how do I hold dollars in an Indian bank without converting them". RFC answers "I have moved back, where can my foreign money stay foreign".

The rules for all three come from India's foreign exchange regulations, administered by the Reserve Bank of India, not from income tax law. That is why your tax status, RNOR for example, does not decide which accounts you may hold.

An FCNR(B) deposit, Foreign Currency Non-Resident (Bank), is a term deposit an NRI opens with an Indian bank in a permitted foreign currency, US dollars included. The money stays in that currency for the whole term, so there is no exchange-rate risk on it while it is deposited, and both principal and interest are repatriable.

Terms run from one year to five years. It is a deposit, not a current account: you do not pay bills from it, and breaking it early usually costs some of the interest.

Because it never becomes rupees, an FCNR deposit suits money you may want back in dollars, or money you plan to convert later and in pieces rather than on the day you send it.

Neither is better in general. An NRE balance is in rupees, so it rises and falls with the exchange rate but can be spent in India immediately. An FCNR deposit stays in dollars, so it is protected from rupee movement but locked for a term. Choose by whether the money will be spent in India.

Money meant for an Indian purchase, a home, a wedding, a parent's expenses, is usually better in rupees, and an NRE account is the ordinary home for it. Money that is a reserve, or that you may take back to the US, is the FCNR case.

Interest rates on the two differ by bank and by currency and change often. Compare them on your own bank's current rate card, not on a figure in an article.

They are set separately, by each bank, and move independently. NRE fixed deposits are priced like other rupee deposits, while FCNR rates follow interest rates in the deposit's own currency. A higher-looking NRE rate is not directly comparable, because the rupee can weaken against the dollar over the same term.

To compare honestly, think in the currency you will finally spend. If you will spend dollars, an NRE deposit's return has to be reduced by however much the rupee falls over the term. If you will spend rupees, an FCNR deposit's return has to be converted at a rate you do not know yet.

An RFC account, Resident Foreign Currency, lets a person who has returned to India to stay, after living abroad for at least a year, keep foreign currency in an Indian bank. Money brought back from abroad, and the proceeds of maturing FCNR deposits or redesignated NRE balances, can be held in it without conversion to rupees.

The money in an RFC account is free of the restrictions that apply to residents buying foreign currency: it can be used abroad or sent back out, because it was earned abroad in the first place.

It can be opened as a savings, current or term deposit account, depending on the bank. Ask your bank which forms it offers before you return.

Under RBI rules, once you return to India to stay, an NRE account is redesignated as a resident account or its balance is moved to an RFC account. An FCNR deposit can be allowed to run to maturity at the contracted rate, and its proceeds are then credited to a resident or RFC account.

Tell your bank when you change residence rather than waiting to be asked. Interest the bank keeps paying as if you were non-resident can be taxed differently once you are not, and the correction is easier made early.

An NRO account is redesignated as a resident account too, which is usually a simple paperwork change.

Keep the part of your savings you do not need in India yet in foreign currency: in an FCNR deposit before you return, or in an RFC account after. Convert in planned instalments as you need rupees. That spreads exchange-rate risk over time instead of fixing your whole savings at one day's rate.

Another option is to leave part of your savings in a US account and send it in stages, which also works while you are still in the US. Whichever route you use, plan the instalments around real expenses, a deposit on a flat, school fees, rather than guessing at where the rate is going.

Large single conversions are where small differences in exchange rate cost the most, so compare the rupees you will receive on each instalment.

While you are non-resident, interest on NRE accounts and FCNR deposits is generally exempt from Indian income tax. Interest on an RFC account is taxable like any resident's interest. Around the year you return, RNOR status and the exact date of your change of residence can affect the treatment, so confirm yours with an adviser.

If you are a US citizen or green card holder, the US taxes this interest whatever India does, and the accounts count towards FBAR and other foreign-account reporting.

Before you move, an FCNR deposit is the usual way to hold dollars in India. After you move, an RFC account is the one designed for it. Money you will spend in India soon belongs in rupees. Most returnees end up with a resident rupee account and an RFC account side by side.