Buying Fixed Deposit in India from Europe

Given the chance, does it pay off to open a FD in India (high interest rates, high inflation) with Euros (low interest rates, low inflation) from Europe?

Or is it too risky on the long run (~ 1 year) looking at the currency exchange rates and other unknowns?

• When I asked this question, 11. Aug. '14, the rate was 81.8 INR for 1 Euro. Today 13. April '15 it is 65.9. It would have made sense to buy INR in Aug. '14 and to sell it now. Thats 7 months. Another 5 months (with the money on FD) and a similar exchange rate would give additionally the interest rate of the FD. Apr 13, 2015 at 9:11

If the intention is after maturing to convert back the Rupees into Euro, its not a good idea.

Generally the interest rate in Euro and the interest rate in Rupee are offset by the predicted exchange rate. i.e. the Rupee will fall compared to Euro by similar rate.

1. For example if 100 EUR gives an return of 102 EUR in 1 year, say 2% Interest
2. The Exchange Rate say is 1 EUR is INR 100. so 100 EUR = 10,000 INR
3. In India Say interest rate of 10%. At year end 10,000 INR will be 11,000 INR
4. The rate would generally at year end move to 1 EUR = 108 INR; i.e. 10% - 2%, aprox 8% fall
5. At this rate 11,000 INR would be 101.85 EUR

The point at Step 5 is generally what is expected to happen. At times this can be less or more depending on the local / global factors. So on average you will not make money, some times you will loose and sometimes you will gain.

Plus I have shown flat conversion rates, typically there is a Buy Rate and a Sell Rate for a pair of currencies. There is a difference / spread that is the margins of Bank. Typically in the range of 2 to 4% depending on the currency pairs.

• There are also other small expenses, which come along in remitting forth and back. Given this is what happens, it doesn't matter where to open a FD. Aug 12, 2014 at 19:50
• Looking at the history of EUR - INR, the conversion back could be also timed at a rate which was approximately the same or better? Aug 12, 2014 at 20:13

A few weeks ago, I was thinking about this exact thing (except swap Euros for Canadian Dollars). The good news is that there are options.

Option 1: yes, buy Indian fixed deposits

Interest rates are high right now- you can get up to 9% p.a. It boils down to your sentiment about the Indian rupee going forward.

For instance, let's say you purchase a deposit for amount `x` at 9% p.a., you can have it double to almost `2x` in 10 years.

Three things can happen in 10 years:

• Rupee is stronger to the Euro: you have more than doubled your investment with no risk
• Rupee is the same versus the Euro: you have doubled your investment
• Rupee is weaker: depending on how much weaker it is, you may make a negative return

Are you optimistic about Indian governance and economy going forward? If you are, go for it! I certainly am.

Option 2: heard of FCNR?

Look in to FCNR deposits. I don't know about Europe, but in Canada, the best rate for a 1 year deposit is approximately 1.5%.

However, through Foreign Currency Non-Resident (FCNR) deposits, you can get up to 4% or 5%. The other benefit is that you don't have to convert currency to INR which results in conversion savings.

However, only major currencies can be used to open such accounts.

• FCNR is at 1.32% interest rate (at one of the banks, 1. August) for Euro. Thats no advantage compared with domestic rates. Aug 12, 2014 at 19:59
• Depending on the length of the deposit, you can go up to 2.7% here: icicibank.com/nri-banking/RHStemp/rates.page? Aug 12, 2014 at 23:41

You could go further and do a carry trade by borrowing EUR at 2% and depositing INR at 10%. All the notes above apply, and see the link there.

About the inflation or low interest rates in both the countries is out of the equation especially since rupee is always a low currency compared to Euro. You cannot make profit in Euros using rupee or vice-versa.

It all depends on where you want to use the money, in India or Europe? If you want use the money from fixed deposit in Europe, then buy fixed deposit in euros from Europe. If you want to use the money in India, then convert the euros and buy FD in India.