6 Factors That Actually Affect Returns in USD Investments

Most NRIs compare GIFT City FD rates the way they compare flights. Pick the highest number. Book it. Move on.

But here's what that approach misses. Two NRIs can invest the same amount, in the same bank, on the same day, and walk away with different returns.

The advertised rate is just the starting point. Six structural factors sit between that headline rate and the actual money that lands in your account.

At Belong, we've helped thousands of NRIs across the UAE understand these gaps.

1. Which Bank You Choose (and Why It Matters More Than You Think)

GIFT City has over a dozen banks offering USD fixed deposits. Their rates can differ by 100-200 basis points for the same tenure.

As of February 2026, here's what the landscape looks like for select tenures (Source: Belong NRI FD Comparison Tool, updated 9 Feb 2026):

The gap between the highest and lowest rate for the same 91-day tenure is over 200 basis points. On a $50,000 deposit, that's roughly $250 difference in just three months.

👉 Tip: Don't pick a bank from a Google search. Use the Belong NRI FD comparison tool to see live rates across GIFT City, NRE, NRO and FCNR deposits. Filter by tenure and currency.

2. Tenure Selection: The Rate Curve Isn't Always Logical

Most NRIs assume longer tenures pay more. In rupee FDs, that's usually true. In USD FDs, it's often inverted.

When the US Federal Reserve holds rates high (the fed funds rate was 3.50-3.75% as of January 2026, per Federal Reserve), short-term USD rates can exceed long-term rates.

Banks price GIFT City FDs based on global USD interbank rates, not RBI repo rates. This means a 91-day FD can sometimes pay more than a 1-year FD.

This is counterintuitive for anyone used to Indian FDs. But it happens regularly in USD markets.

The practical impact: locking in a 3-year USD FD at today's rate might seem safe. But if short-term rates are higher, you're leaving money on the table for three years.

A laddering strategy where you split deposits across 3-month, 6-month and 1-year tenures captures the best of both. Short tenures earn the current high rate.

Longer tenures lock in protection if rates fall.

👉 Tip: Check the full rate curve, not just the 1-year rate. Sometimes the 91-day FD outperforms the 1-year FD on an annualised basis. Compare rates across all tenures before deciding.

3. How Interest Gets Calculated (Simple vs Compound)

This is the factor almost nobody checks. GIFT City banks follow a standard pattern.

For deposits of 12 months or less, interest is calculated on a simple interest basis. For deposits above 12 months, interest is compounded annually (Source: ICICI Bank GIFT City T\&Cs, HDFC Bank GIFT City).

Another detail most NRIs miss: for USD deposits, banks calculate interest based on a 360-day year, not 365 days (Source: ICICI Bank GIFT City Terms).

This means your effective annual rate is slightly higher than the stated rate. On a $100,000 deposit at 5%, the 360-day convention gives you about $69 more than a 365-day calculation.

If you're investing for exactly 12 months, you get simple interest.

If you stretch to 13 months, you get annual compounding on the first year's interest. Check with your specific bank whether the 13-month rate justifies the extended lock-in.

4. Your Tax Residency Changes the Net Return Entirely

The same 5% GIFT City USD FD delivers very different net returns depending on where you live.

UAE residents: GIFT City FD interest is exempt from Indian tax under Section 10(4B) of the Income Tax Act. The UAE has no personal income tax. Your 5% is a true 5% net. This is why GIFT City tax benefits are particularly powerful for Gulf-based NRIs.

UK residents: The interest is exempt in India. But HMRC taxes worldwide income. Your 5% becomes 5% minus your UK marginal rate (20-45%). DTAA between India and the UK prevents double taxation, but doesn't eliminate UK tax.

US residents: Same Indian exemption applies. But the IRS taxes worldwide income. GIFT City mutual funds may also trigger PFIC rules. FDs are simpler, taxed as ordinary income at your US marginal rate.

Two NRIs with identical FDs can net 5% (UAE) or 3% (UK at 40% bracket). Tax residency isn't a minor detail. It's the single biggest variable after the headline rate. Confirm your residential status and understand your country's rules on foreign interest before investing.

5. Premature Withdrawal Penalties Vary Wildly

Life doesn't always go according to plan. The penalty structure differs dramatically across GIFT City banks.

Axis Bank charges 0.15% below the applicable rate for the tenure held (Source: Axis Bank GIFT City FAQs).

ICICI Bank deducts 0.50%, and the amount returned can sometimes be less than the principal (Source: ICICI Bank GIFT City).

HDFC Bank uses tiered penalties: 1% for deposits under 6 months, 0.25% for 6-12 months, none above 1 year (Source: HDFC Bank GIFT City).

On a $100,000 deposit broken after 8 months, the penalty difference between 0.50% and 0.15% is $350. If you might need early access, choose a bank with lighter penalties or build an emergency fund separately.

Some banks also offer non-callable deposits at slightly higher rates. Only choose these if you're certain about the tenure. Read our GIFT City pros and cons guide for a fuller picture.

6. What Happens at Maturity (Reinvestment Risk)

Your FD matures. The bank auto-renews it. But at what rate?

Banks renew at the prevailing rate on the maturity date, not your original rate (Source: ICICI Bank GIFT City T\&Cs).

If the Fed cuts rates between booking and maturity, your renewed rate drops.

The Federal Reserve held rates at 3.50-3.75% in January 2026 (Source: Federal Reserve). Market consensus expects 1-2 further cuts in 2026 (Source: J.P. Morgan Global Research, Feb 2026).

Three ways to manage this. Stagger maturity dates across quarters. If you believe rates will fall, lock in a longer tenure now.

Track the GIFT Nifty and Fed announcements before renewal, and instruct the bank to hold rather than auto-renew if you want to shop for better options.

For the equity side of your USD portfolio, GIFT City mutual funds and AIFs don't face reinvestment risk.

Returns are market-linked, not rate-dependent. Read our guide on FDs vs mutual funds to understand how to balance both.

The Rate Is Just the Beginning

The advertised rate gets you in the door. These six factors decide what actually walks out with you.

Bank selection, tenure strategy, compounding rules, tax residency, penalty structures and reinvestment risk each add or subtract from your real return.

Thousands of NRIs in our WhatsApp community now check all six before making a single deposit. No shortcuts. No surprises. No money left on the table.

The Belong app puts all of this in one place. Compare FD rates across every GIFT City bank.

Explore GIFT City mutual funds and AIFs for the equity side of your portfolio. Know exactly what you'll earn before you invest.

Disclaimer: For informational purposes only. Not financial, tax or legal advice. Consult qualified advisors before investing. Tax laws, rates and regulations subject to change. Interest rates sourced from official bank websites and Belong's NRI FD comparison tool as of February 2026.