FCNR vs US Treasuries: NRI's $100k Dilemma
An NRI (Non-Resident Indian) considering where to park $100,000 is faced with a choice between an Indian FCNR deposit and US Treasuries. While FCNR offers higher returns of around 6-7% in USD compared to US Treasuries' 4.18% for 2-year paper and 5.24-5.31% for 30-year bonds, it comes with a trade-off: a longer lock-in period, lower liquidity, and bank risk.
According to Madhupam Krishna, a SEBI-registered investment adviser and founder of WealthWisher Financial Planners and Advisors, an NRI who expects the rupee to depreciate significantly over 3-5 years and plans to spend in INR later may find FCNR attractive as they can convert at maturity into a potentially weaker rupee.
However, US Treasuries offer greater liquidity and flexibility to manage duration through ladders, barbells, and other strategies if US interest rates change. Additionally, US Treasury interest is exempt from state and local income taxes for non-resident aliens, whereas FCNR interest earned outside the US is generally not US-sourced.
Ultimately, the choice between FCNR and US Treasuries depends on an NRI's individual circumstances, including liquidity needs, tax residency, and currency expectations. An NRI who can lock away their money for 3-5 years and expects to spend it in India may find FCNR more attractive, while those prioritizing liquidity or wanting to manage duration actively may prefer US Treasuries.