When NRIs ask us about breaking an FCNR deposit, they almost always ask about the penalty.
It is the wrong question to ask first. The penalty is real, and it varies enormously between banks, from nothing at all to a full percentage point.
But it is the smallest of three costs you face on an early exit. The other two are larger and far less discussed.
This piece sets out all three, then compares the published penalties bank by bank with the figures each institution states. We have used actual numbers here because penalties, unlike interest rates, change rarely.
Verify the current position with your bank before acting. Penalty schedules do get revised, and two banks revised theirs during 2026.
The three costs, in order of size
Cost one: total forfeiture inside twelve months. Break the deposit before it completes a year and no interest is payable. Not a reduced rate. Nothing.
This is an RBI-level design feature, not a bank choice. The minimum FCNR tenure is one year, and a deposit broken inside that never enters an interest-bearing band.
Every bank in this comparison applies it. It is the largest cost by a wide margin, and no penalty schedule can make it worse.
Cost two: the rate reset.
Past twelve months, your contracted rate is discarded. Interest is recalculated at the rate applicable for the period the deposit actually ran.
Break a five year deposit after two years and you are paid a two year rate. Not the five year rate you agreed. In 2026 that gap is unusually wide, because the long band was repriced and the short band was not.
Cost three: the penalty.
Only now does the published penalty apply, and it is deducted from the already reduced rate.
👉 Tip: Ask your bank to model the actual figure you would receive. A penalty percentage on its own tells you very little.
Lock-in is a different thing entirely
Before the table, one distinction that causes real confusion.
A penalty is a cost you pay to leave. A lock-in means you cannot leave at all.
Deposits booked under RBI's 2026 arrangement, for three to five year tenors, generally carry a twelve month lock-in. During that period premature withdrawal is not permitted at any price.
So for a deposit booked in this window, the penalty question does not even arise in year one. The answer is that you cannot exit.
An ordinary FCNR deposit outside the 2026 window has no such lock-in. It simply pays no interest if broken inside a year.
That difference matters if your circumstances are uncertain. Our note on liquidity planning applies directly here.
The penalty table, bank by bank
Figures below are as published by each bank. Where we could not confirm a figure from a bank's own pages, we say so. We do not repeat third-party numbers.
The spread is the striking part. On a three to five year deposit, one bank charges a quarter of a percentage point. Two charge four times that.
What the table does not show
Three things sit behind those figures and can matter more.
The reset basis differs.
SBI compares several rates and applies the lowest of them. HDFC Bank uses the rate that prevailed on your booking date for the period actually run.
Kotak Mahindra Bank applies a two-way test first. It takes the rate prevailing on the deposit date for the tenure completed. That is compared against your contracted rate, and the lower one applies.
That comparison happens before any penal charge is calculated. In a rising rate environment it works against the depositor.
Penalties are not always uniform across currencies.
Axis Bank states that penalties on respective FCNR currencies are published separately. Kotak Mahindra Bank does the same.
So a single headline penalty figure may not be the one that applies to your deposit. Ask for the schedule for your specific currency.
Penalties change.
YES Bank published its schedule across three effective dates during 2026. The three year and above band rose from a lower figure to a higher one.
The dollar moved first, then the other currencies.
That is worth noting for what it signals. Banks improved pricing on the long band, then raised the cost of leaving it early.
Renewal creates a separate exposure
Canara Bank publishes a rule that does not fit the penalty framing at all.
Say a deposit is withdrawn after renewal but before the minimum stipulated period. Interest already paid for the overdue period can be recovered.
Recovered, not merely reduced.
The overdue period means time beyond the original maturity date of the earlier deposit. So money already credited to you can be clawed back.
Its schedule also references crystallisation, where residential status on the date of renewal determines the overdue-period rate. If your status has changed, that sentence applies to you.
This is a general explanation of the term rather than a full statement of the bank's procedure. Confirm your position directly.
Our note on renewal and maturity questions to revisit covers the wider habit.
The alternative most people miss
Given how the three costs stack, breaking a deposit is often the worse option.
Borrowing against the deposit keeps your contracted rate running. There is no reset, no penalty and no forfeiture.
Most banks offer an advance against an FCNR deposit. Federal Bank permits advance against deposit while excluding overdraft facilities against its 2026 scheme.
Kotak Mahindra Bank, Canara Bank and others offer loans or overdrafts against deposits, subject to their terms.
The cost of the advance has to be weighed against what breaking the deposit would forfeit. Where the need is temporary, borrowing usually wins.
👉 Tip: Before breaking any deposit, ask what an advance against it would cost instead.
Run both numbers. The answer changes depending on how far into the term you are, and how long you need the money for.
Reading a penalty against a tenure
A penalty figure means nothing until you attach it to a tenure and a currency.
Consider two depositors at the same bank. One books twelve months, the other books five years under the 2026 arrangement.
The first can exit after a year at the short-band penalty, which at some banks is a token figure. The second cannot exit at all in year one, then faces the higher long-band penalty.
Same bank, same currency, very different exit position. The tenure decision is also an exit decision, and most people make it thinking only about rate.
👉 Tip: Choose tenure by when you might need the money, not by which row pays best.
There is a further wrinkle at banks that price by currency. Your penalty may differ from a colleague's, even at the same branch on the same day.
That is not inconsistency. It reflects the different hedging positions banks hold across currencies.
To structure money so this rarely bites, start with our note on creating a safe financial base.
Where regular income is the actual need, a deposit may be the wrong shape entirely. Our comparison of monthly income plans against systematic withdrawal plans covers the alternatives.
When early exits actually happen
In advisory conversations, early closures cluster around three events.
A job loss abroad is the most common. A family medical event in India is second. A property purchase moving faster than expected is third.
None of these are exotic. All three are foreseeable enough to plan around, which is the real lesson of a penalty table.
The answer is not to avoid deposits. It is to size them so a foreseeable event does not force the exit calculation.
An emergency buffer sitting outside the deposit costs you some yield. It also prevents the largest of the three costs entirely.
Our notes on the three bucket strategy and safe versus growth investments cover how to structure that.
Laddering achieves something similar. Several smaller deposits maturing at intervals means you can break one rather than all of them.
For the wider structure, see our notes on asset allocation for NRIs and the five layer investment framework.
How the arithmetic actually works
The interaction between costs is worth understanding before you commit.
A deposit under a year pays nothing, so simple interest or compounding is irrelevant there.
Past a year, compound interest at half yearly rests has begun accruing. The reset applies to that accrued amount, not just to future interest.
The later you break a deposit, the more the reset costs in absolute terms. The rate gap may narrow even as the cost rises.
There is also the opportunity cost of the money you did not have available. That never appears in any penalty schedule.
For the money structure underneath all of this, see our note on how to organise your money.
Five questions before you book
What is the penalty for my specific currency, stated in writing?
Is there a lock-in, and does it apply to my tenure?
How is the rate reset calculated, and against which benchmark?
Can I borrow against the deposit instead of breaking it?
What would I actually receive if I closed at year two, year three and year four?
That last question is the one worth insisting on. A modelled figure tells you more than any published schedule.
For resident Indians reading this
FCNR is not open to you. It is a non-resident product by design.
The exit question still applies to any locked instrument you hold. Our notes on exiting GIFT City investments and redemption and repatriation timelines cover the equivalent.
For a comparison of exit flexibility, see our note on liquidity in GIFT City versus Indian mutual funds. Watch the cost side too, in our note on GIFT City hidden fees.
Our GIFT City mutual funds explorer lists what is available. Mandates run from the DSP Global Equity Fund to the Tata India Dynamic Equity Fund.
Regional and mid-cap mandates sit alongside them. The Edelweiss Greater China Equity Fund and Sundaram India Mid Cap Fund target different outcomes.
For longer horizons, GIFT City alternative investment funds and the primary market open further routes. Our explainer on the first GIFT City IPO covers how that market works.
You can also browse mutual fund products and follow market direction on the GIFT Nifty tracker.
To compare deposit options across banks, our NRI FD rates explorer puts them side by side. For simplifying an over-complicated portfolio, see our note on simplifying investments.
FAQ
Which bank has the lowest FCNR premature withdrawal penalty?
SBI and HDFC Bank publish no separate penalty on ordinary FCNR deposits, relying on a rate reset instead. Among banks that do levy one, YES Bank publishes the lowest short-band figure.
What happens if I break the deposit within a year?
No interest is payable at any bank. You receive your foreign currency principal back and nothing more.
Is the penalty the main cost of leaving early?
No. The rate reset usually costs more, and total forfeiture inside twelve months costs the most of all.
Can I exit a deposit booked under the 2026 window?
Not during the twelve month lock-in. Premature withdrawal is not permitted at any price in that period.
Do penalties differ by currency?
At some banks yes. Axis Bank and Kotak Mahindra Bank both publish penalties currency by currency rather than as a single figure.
Is there an alternative to breaking the deposit?
Usually. Most banks allow an advance or loan against the deposit, which keeps your contracted rate running.
What we would do next
Ask your bank for the modelled exit figure at two or three points in the term, not the penalty percentage. Check whether a lock-in applies before assuming any exit is possible. Then compare the cost of an advance against the deposit before breaking it.
Belong brings deposit and fund options into one view. Our WhatsApp community is where NRIs work through these decisions together.
Sources
IndusInd Bank, Interest Rates page. Source for the 0.25% penalty on FCNR(B) deposits under the 2026 arrangement and the associated lock-in: https://www.indusind.bank.in/in/en/personal/rates.html
YES Bank, NRI Interest Rates schedule. Source for the penalty table across three effective dates. Covers the 0.05% short band figure and the 0.25% figure on longer tenures: https://www.yes.bank.in/sites/web/content/published/api/v1.1/assets/CONT4232E91A699245729D4F725A28ECFEA2/native/nri_interest_rates_pdf.pdf
Federal Bank, FCNR Max page. Source for interest payable at one percentage point below the rate applicable for the period held, after the lock-in: https://www.federal.bank.in/fcnr-max
ICICI Bank, FCNR(B) Deposit page and FAQs. Source for the no-penalty position on the 12 to under 36 month band. Also the lock-in and penalty position on longer deposits: https://www.icici.bank.in/nri-banking/deposits/fcnr-fd
State Bank of India, FCNR(B) Account page. Source for the lowest-of-three-rates approach with no separate penalty: https://sbi.bank.in/web/nri/accounts/fcnrb-account
HDFC Bank, Current Interest Rates page. Source for the premature withdrawal basis effective 22 July 2023 and the no-penalty position: https://www.hdfc.bank.in/interest-rates
Axis Bank, Fixed Deposit and Recurring Deposit Terms and Conditions. Source for currency-specific FCNR penalties being published separately: https://www.axis.bank.in/mailers/TnC/Axis-FD-RD-T-C.html
Canara Bank, FCNR(B) Account page. Source for overdue interest recovery on renewal and the crystallisation reference: https://www.canarabank.bank.in/fcnr-b-account
Kotak Mahindra Bank, FCNR Deposits Fees and Charges page. Source for the lower-of-two-rates test applied before the penal charge: https://www.kotak.bank.in/en/personal-banking/nri/accounts-deposits/deposits/fcnr-deposits/fees-charges.html
Reserve Bank of India, Master Direction on Interest Rate on Deposits. Source for the minimum tenure and the no-interest position below one year: https://www.rbi.org.in
Penalty schedules, lock-in terms and reset methods change. Two banks revised their schedules during 2026. Verify with your bank before acting.
Disclaimer
This article is for information only and is not investment, tax or legal advice. It does not account for your personal circumstances or residential status.
Penalty figures are reproduced from each bank's published pages as at the time of writing. Penalty schedules change far less frequently than interest rates. They are still subject to revision, and at least two banks revised theirs during 2026.
Where a figure could not be confirmed from a bank's own pages, the table says so. No third-party numbers were substituted. Axis Bank and Kotak Mahindra Bank publish penalties by currency, and those schedules should be obtained directly.
The ICICI Bank position on longer deposits is described as a penalty that may apply. That reflects the conditional language used on the bank's page.
The description of crystallisation is a general explanation of the term, not a full statement of any bank's procedure.
Consult a qualified adviser before acting. Belong is an investment advisory platform and does not accept deposits.