Understanding FCNR, RFC, and EEFC Accounts: A Simple Guide for NRIs and Returning Indians

Now we are familiar with NRE and NRO accounts, there are three more types of foreign currency accounts worth knowing – FCNR, RFC, and EEFC. These accounts are designed to meet different needs based on whether you’re:

1. an NRI currently living abroad OR
2. an NRI who has returned to India OR
3. a resident Indian earning in foreign currency.

Let’s break down each one in simple terms.

1. FCNR (B) Account – for NRIs

An FCNR (B) (Foreign Currency Non-Resident Bank) account is like a fixed deposit in India, but the money is held in foreign currency instead of Indian Rupees.

Key Features:

1. Only NRIs can open this account.
2. Money must be deposited in foreign currency (USD, GBP, EUR, JPY, CAD, or AUD).
3. You can deposit income earned abroad or freely repatriable funds (as accepted in case of NRE account).
4. Foreign currency cash deposits are not accepted.
5. The funds are not converted into INR, they stay in foreign currency. It’s ideal if you want to avoid currency conversion and protect your money from exchange rate fluctuations.
6. Deposit term: Minimum 1 year and up to 5 years.
7. Recurring Deposits are not allowed.
8. Interest is paid every 180 days (not monthly or quarterly), calculated on a 360-day year.
9. Interest can be fixed or floating (adjusted every 6 months).
10. On maturity, funds can be used for Local payments (after conversion to INR), Foreign payments or investments (without restrictions).
11. Interest is tax-free in India if you are still an NRI.
12. If your status changes to resident, the FCNR account can be held till maturity, but interest becomes taxable from the date of status change.
13. At maturity, you can: Convert the deposit to a Resident Rupee Account or Transfer to an RFC Account (if eligible).
14. Can be opened: Jointly with another NRI, PIO, or OCI OR with a resident Indian (close relative only) as “Former or Survivor”.

Example:

Ravi, an NRI living in the US, opens an FCNR deposit in USD for three years. His money earns interest in dollars and is protected from fluctuations in the value of Indian Rupee.

2. RFC Account – For NRIs Returning to India

An RFC (Resident Foreign Currency) account is for NRIs or PIOs who have returned to India and want to keep their foreign currency earnings without converting them into INR.

Key Features:

1. Only available to returning NRIs or PIOs who now qualify as residents.
2. Must be opened within a reasonable time after becoming a resident.
3. Can hold funds in foreign currencies like USD, GBP, and Euro.
4. Funds are fully repatriable, if you move abroad again, you can transfer the money easily.
5. Shields your savings from exchange rate risks.
6. Types of RFC accounts: Savings, Current, or Term Deposit.
7. Tenure for term deposits: Usually 1 to 3 years, or more as agreed with the bank.
8. Account can be held singly or jointly.
9. Funds remain in the same foreign currency to avoid conversion losses.
10. Can be used for overseas and domestic expenses, Investments in shares, securities and mutual funds, Donations or gifts in India or abroad.
11. Covered under DICGC (Deposit Insurance and Credit Guarantee Corporation) deposit insurance up to ₹5 lakh (INR) per bank.
12. To avoid double taxation, you can use the DTAA (Double Taxation Avoidance Agreement) if tax was already paid abroad.

Withdrawals:

1. Cash in INR from bank branch (with proper documentation).
2. Transfer to your resident INR account (CASA) for use in India.
3. If you become an NRI again, funds can be transferred to NRE or FCNR account.
4. Transfer to your resident INR account (CASA) for use in India.

Funds can be deposited from:

1. Personal cheques from foreign bank accounts, traveller’s cheques, or foreign currency notes
2. Foreign assets like pensions, dividends or interest income
3. Sale of overseas assets
4. Gifts or inheritances in foreign currency
5. Life insurance proceeds received in foreign currency

Funds can be used for:

1. Transfer to another RFC or FCNR account
2. Overseas remittance or investments
3. Family support abroad
4. Domestic expenses

Conversion from NRE FD to RFC:

1. If the NRE FD is less than 1 year, interest is paid at RFC savings account rate (usually very low).
2. If the FD is more than 1 year, you get the original contracted interest rate.
3. No penalty is charged for early withdrawal during conversion.

Example:

Priya, after working in the UK for 10 years, returns to India and deposits her GBP savings in an RFC account. Later, she uses the funds for her daughter’s education abroad.

3. EEFC Account – For Residents Earning in Foreign Currency

An EEFC (Exchange Earners’ Foreign Currency) account is meant for resident Indians like exporters, freelancers or professionals, who receive income in foreign currency.

Key Features:

1. Only for resident individuals or companies earning in foreign currency.
2. It is a non-interest-bearing current account.
3. Allows you to hold foreign currency instead of converting it immediately to INR.
4. Helps save on currency conversion charges.
5. Useful for making foreign payments (like imports or service fees)
6. Funds can generally be held until the end of the next month (30th or 31st); after that, unused balance may be converted to INR automatically (bank rules may differ).

Example:

A freelance software developer in India earns in USD and holds her income in an EEFC account. Instead of converting it to INR, she uses those dollars to pay for cloud hosting, software licenses, and other services abroad, saving on conversion fees and avoiding exchange rate fluctuations.

Summary Table-

Feature	FCNR (B) Account	RFC Account	EEFC Account
Who can open	Only NRIs	Returning NRIs/PIOs who have become residents	Resident Indians (individuals or entities)
Currency of account	USD, GBP, EUR, JPY, CAD, AUD	USD, GBP, EUR	Any convertible foreign currency
Account type	Fixed Deposit only	Savings, Current or Term Deposit	Non-interest bearing Current Account
Tenure	1 to 5 years	Usually 1–3 years, can be extended	Funds usually held till 30th/31st of next month (varies bank to bank)
Interest earning	Yes . Fixed or floating (paid every 180 days)	Yes. On Savings or Term Deposits	No interest paid
Taxability	Tax-free if NRI; taxable after becoming resident	Taxable in India (can claim DTAA benefit if applicable)	Not applicable (no interest earned)
Repatriation (outward transfer)	Freely repatriable	Freely repatriable	Freely usable for eligible foreign payments
Currency risk protection	Yes. Stays in foreign currency	Yes. Stays in foreign currency	Yes. Until automatic conversion to INR
Joint holding	With NRI/PIO/OCI or resident close relative (Former/Survivor)	Singly or jointly (as per bank rules)	As per bank’s current account rules
Cash deposit allowed	No	Yes (e.g. foreign currency notes, traveller’s cheques)	No
Use cases	NRIs wanting to invest in India without currency risk	Returning NRIs who want to hold foreign income in FC	Residents earning in foreign currency (e.g. exporters)