What Is A Foreign Currency Fixed Deposit And How Does It Work?
What Is A Foreign Currency Fixed Deposit?
A fixed deposit or FD is a type of bank account that enables investors to earn interest by depositing an amount for a certain period. They have been a preferred investment option for a long time available in a variety of fixed deposit options being offered by various banks or financial institutions with tenure ranging from 7 days to 20 years. But how are foreign currency fixed deposit accounts different from them?
A foreign currency fixed deposit (FCFD) is a fixed investment account where the investors can maintain and invest a term deposit in foreign currency to earn interest. Such types of accounts are called FCNR (Foreign Currency Non-Resident Account) while the deposited money in these FDs earn interest but with some currency exchange risks. Global investors who are dealing in international trade transactions can use these accounts to diversify their assets against foreign currency movements. In short, foreign currency fixed deposit accounts allow you to boost your savings in foreign currency with fixed interest as well as keep your fund secured.
How Does Fixed Deposit Work?
- When you deposit your money or foreign currency in fixed accounts, you are simply locking that amount for a fixed period.
- You can choose the tenure/term as per your convenience and requirements of the investments. It can vary from 1 month to 12 months, which means you can manage multiple FD accounts with different tenure.
- These fixed deposit solutions enable you to earn interest on the principal sum throughout the tenure on a cumulative basis.
- The earned interest is then added to the principal amount after completing a specific interval.
The foreign currency fixed deposit accounts can be opened with a bank you already have a saving account with. All you need to do is to complete the KYC process and submit the required documents such as ID proof, address proof with passport size photos, etc. The foreign currency fixed deposit accounts allow you to hold savings in various foreign currencies.
Features of Foreign Currency Fixed Deposit Accounts
These are some of the main features of a foreign currency fixed deposit account. Let’s have a look:
- As the name suggests, a foreign currency fixed deposit account can only be opened for depositing foreign currencies. It mitigates the risks of fluctuating conversation rates.
- The offered interest rate can vary depending upon the bank, the specific type of currency you are depositing, and the tenure of the deposit.
- The foreign investors can apply for a loan facility against these FCFD accounts.
- These fixed deposits can be renewed without any struggles.
- The deposited money cannot be withdrawn before the maturity period. In case of any emergency withdrawal, there will be a penalty imposed on the depositor.
Benefits of Foreign Currency Fixed Deposit Account
Following are some of the main benefits of FCFD accounts. Here they are as follows:
- One of the main benefits of investing in a foreign currency deposit account is getting assured returns.
- There are zero risks compared to other forms of investments such as mutual funds.
- When your FD gets matured, a fixed rate of interest will be paid on the principal amount.
- An FD account can be opened in a few minutes. You can either apply online for it or can visit the nearby branch.
- Fixed deposit services allow customers to earn a higher rate of interest compared to their saving account or any other form of term deposits.
- The investors can manage more than one FD account at a given point in time.
- Since the investors are allowed to manage their investments in different currencies, they have the option of diversifying their portfolios.
- These FCFDs help investors protect their investments against exchange rate fluctuations.
Fixed deposits are a safe, secure, and reliable investment account for overseas investors where the funds are reserved for a specified tenure and they get interest payouts in a predetermined manner.