FCNR usually wins on raw after-tax yield right now, thanks to a temporary RBI rate subsidy that has pushed deposit rates well above 6%. A US Treasury bond wins on liquidity, government backing with no dollar cap, and a lot less paperwork. Which one actually fits you depends on your state of residence, how long you can lock the money up, and whether you're willing to add another foreign account to your FBAR and FATCA filings.
Both options are legitimate, and I've had clients pick each one for good reasons. The numbers below show which one wins once you run them through your own tax situation, not just the headline rate on the ad.
What is FCNR?
FCNR (Foreign Currency Non-Resident) is a fixed-term deposit you open with an Indian bank in a foreign currency, USD included, so your principal never touches the rupee. Banks currently offer 1 to 5 year tenures. The best 3 to 5 year USD rates run from 6.00% up to 7.10% or higher at some small finance banks, lifted by a temporary RBI hedging-cost subsidy.
You fund it with a wire from your US account, it's fully repatriable at maturity, and the interest stays exempt from Indian tax for as long as you hold NRI status. The full account walkthrough covers eligibility and documents if you haven't opened one before.
🔔 Please Note: The RBI's subsidy window closes August 31, 2026, moved up from the originally announced September 30, 2026, after the facility drew $56.85 billion in NRI inflows within weeks. Rates booked after this date lose the subsidy and drop back toward normal levels. So the after-tax comparison in this article holds only for deposits you lock in before the window shuts.
What is a US Treasury bond?
US Treasury bonds, notes, and bills are debt the US government issues directly. Bonds run 20 to 30 years, notes 2 to 10, and bills under a year. Yields move with the market: a 5-year note has recently priced around 4.3% to 4.4%, well under the subsidized rate a locked-in deposit offers right now.
You buy any of them through TreasuryDirect with a Social Security number and a linked US bank account, or through an ordinary brokerage account. Backing comes from the full faith and credit of the US government, with no cap on how much any one holder can safely hold.
| Feature | FCNR deposit | US Treasury bond |
|---|---|---|
| Currency held | USD or other allowed foreign currency, no conversion to INR | USD |
| Typical rate, August 2026 | 6.00% to 7.10%+ at major and small finance banks, 3 to 5 year tenure | Roughly 4.3% to 4.4% on a 5-year note, moves daily with the market |
| Rate type | Fixed for the full tenure once booked | Fixed coupon once you buy, but the yield you lock in changes until you buy |
| Minimum tenure | 1 year; the best subsidized rates need 3 to 5 years | None required; you choose bills (weeks), notes (years), or bonds (decades) |
| Premature exit | No interest at all if closed before 1 year, reduced rate after that | Sell anytime on the secondary market, price moves with rates, no bank penalty |
| Deposit insurance / backing | DICGC covers ₹5 lakh, roughly $5,200 to $5,300 at current exchange rates, per depositor per bank | Full faith and credit of the US government, no dollar cap |
| FBAR (FinCEN 114) | Counts toward the $10,000 aggregate foreign account threshold | Does not count, it's a domestic US asset |
| FATCA Form 8938 | Counts toward the foreign asset threshold | Does not count |
| India tax on interest | Fully exempt under Section 10(15)(iv)(fa) while you hold NRI status, no TDS | Not applicable, US-source income |
| US federal tax on interest | Fully taxable as ordinary income the year it's credited | Fully taxable as ordinary income the year it's paid |
| US state tax on interest | Taxable in states that tax interest income, same as any savings account | Exempt from state and local income tax in every state |
| Foreign tax credit | None. India collects no tax on the interest, so there's nothing to credit | Not applicable, no foreign tax was ever paid |
| Minimum investment | No RBI minimum; major banks such as HDFC and ICICI set it at $1,000 | As little as $100 at auction through TreasuryDirect |
| How you buy it | Wire from your US account to an Indian bank's NRI desk | TreasuryDirect.gov or a regular US brokerage account |
| Repatriation | Principal and interest fully repatriable at maturity, no RBI approval needed | Already in the US in dollars, nothing to repatriate |
| If you move back to India | Runs to maturity at the contracted rate, then convert to RFC if you want to keep foreign currency | Interest keeps arriving; the portfolio interest exemption under Section 871(h) can make it exempt from US withholding once you're a nonresident alien |
Please note: Data updated as of August 2026. Rates depend on the bank and tenure you pick, and the RBI's subsidy window is temporary, so verify current terms with the bank before you commit. Treasury yields move daily, so check current auction results before you buy.
The state tax line is the one most people miss. Deposit interest gets taxed in California or New York the same as any other savings account, while Treasury interest never does, by federal law. That gap is real, but right now it isn't big enough to flip the deposit's after-tax edge.
The example below is illustrative, not a projection of your own numbers. It assumes a hypothetical 32% federal bracket and California's roughly 9.3% top marginal state rate. A $50,000 deposit at 6.5% throws off $3,250 a year, and after both taxes you'd keep about $1,900. The same $50,000 in a Treasury note at 4.3% earns $2,150, and after federal tax alone you'd keep about $1,460.
The subsidized rate spread is wide enough today to absorb the extra state tax. The FBAR reporting that comes with a foreign deposit is a real cost too, just not a financial one.
Which one should you choose?
Neither option is wrong. The right pick usually comes down to two things: how long you're willing to lock the money up, and whether you want another foreign account showing up on your FBAR and FATCA filings. The rate gap favors it today, but that gap exists because of a subsidy that's scheduled to end.
When to choose FCNR:
- You want the highest guaranteed rate available right now and can commit to a 3 to 5 year lock-in without needing the cash sooner
- You live in a state with no income tax, such as Texas, Florida, or Washington, so Treasury's state-tax exemption is worth nothing to you anyway
- You're comfortable holding a foreign account and don't mind the extra line item on your FBAR and Form 8938
- You expect to move back to India within the deposit's tenure and want a clean path to convert it into an RFC account later
- You already bank with the Indian branch offering it, so the wire transfer and paperwork are low-friction
When to choose US Treasury:
- You live in a high-tax state like California or New York and want the state-tax break actually working for you
- You want the option to sell before maturity without losing the interest you've already earned, unlike the deposit's premature-withdrawal penalty
- You'd rather not add another account to your FBAR and Form 8938 filings
- You're parking a large balance and don't want to split it across multiple banks just to stay under a deposit-insurance cap
- You're not confident you'll still want India-linked dollars three to five years from now
If you're also weighing this against NRE or NRO accounts, there's a full NRE vs NRO comparison that covers that decision separately.
Can you use both?
Yes, and a fair number of clients do. It's common to park the money you're comfortable locking up for the RBI's subsidized rate there. Meanwhile, a Treasury ladder on the US side covers anything you might need sooner, or want to keep entirely outside India's banking system. Splitting the two isn't a compromise so much as matching each dollar to the time horizon it actually has.
A client of mine had a deposit maturing right as the RBI's subsidized rate went live. The question was whether to repatriate and redeposit at the new rate, or move the money into something on the US side instead. I'd tell most clients in a high-tax state to run the after-tax math before automatically re-locking for another five years. Here, the subsidized spread was still wide enough that re-locking a portion made sense, but only for the part of the balance that wasn't needed before the term ended.
How InvestMates can help with this decision
Every calculator and comparison table you'll find online runs the pre-tax numbers. What actually decides this choice is your marginal federal bracket, your state, and whether India's FBAR and FATCA reporting burden is worth the extra half a point of yield to you. That's the layer neither your bank nor the Treasury auction site is built to show you.
InvestMates advisors can model your after-tax return on both options side by side, using your actual filing status and state, not a generic example. If you're also weighing GIFT City or PMS accounts as ways to avoid PFIC exposure on India-side investments, there's a separate PMS vs GIFT City comparison worth reading alongside this one. And if you eventually plan to move back to India, an advisor can walk through how each option behaves once your residency status changes, before you lock in a five-year term.
Book a free consultation with an InvestMates advisor to run your specific numbers before you wire anything.
The bottom line
For most NRIs parking dollars today, FCNR's subsidized rate still wins the after-tax math in most states.
That edge narrows fast once you're in a high-tax state, or once the RBI subsidy expires. My advice: run your own numbers by state and bracket before locking money into either one for years. If you're not sure which side of that line you fall on, talk to an InvestMates advisor before you wire anything.
Frequently asked questions
Are US Treasury bonds a better investment than an FCNR fixed deposit?
It depends on where you live and how long you can lock the money up. At today's RBI-subsidized rates, FCNR usually wins on after-tax yield even in high-tax states, but a Treasury bond wins on liquidity and government backing with no deposit cap. Once the subsidy window ends and FCNR rates normalize, that math is likely to shift toward Treasuries for anyone paying state tax.
Can an NRI buy US Treasury bonds directly?
Yes. If you're a US-based NRI with a Social Security number and a US bank account, you can buy Treasury bills, notes, and bonds directly through TreasuryDirect.gov or through an ordinary US brokerage account. You don't need to be a citizen or green card holder, a valid SSN and US address are enough.
Which is safer, an FCNR deposit or a US Treasury bond?
A Treasury bond, on a pure counterparty basis. It's backed by the full faith and credit of the US government with no dollar cap. FCNR deposits, by contrast, carry DICGC coverage of only ₹5 lakh, roughly $5,200 to $5,300 at current exchange rates, per depositor per bank.
That gap matters most if you're parking a large balance and would otherwise need to spread it across several Indian banks just to stay insured.
What happens to my Treasury bond interest if I move back to India?
You keep receiving it without any change in the mechanics. Once you become a nonresident alien for US tax purposes, the portfolio interest exemption under IRC Section 871(h) generally applies. It makes Treasury interest exempt from US withholding, provided you have a valid W-8BEN on file with your broker.
Do I need a US brokerage account to buy Treasury bonds, or is TreasuryDirect enough?
TreasuryDirect.gov is enough on its own, and it's how most first-time buyers do it: you link a US bank account, place an order at auction, and the interest lands straight in your bank. A brokerage account makes it easier to sell before maturity, but it isn't required just to buy and hold, and it's worth deciding this alongside your broader asset allocation rather than as a one-off purchase.