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Monday, May 7, 2018

NRE or NRO Fixed Deposit? Compare the Features of Both Options

Many Non-Resident Indians (NRIs) want to open an account in this country, for various reasons.
A person who is working abroad could want to remit funds to their family in India. A person of Indian origin—who is now a citizen or resident of another county—could be planning to return to India at a later date, and so want to create investments here for later use.

An NRI can open savings, current, Fixed Deposit or Recurring Deposit accounts in India. However, these would be different from the domestic bank accounts.

The Different Types of NRI Deposits

You can open an NRE or NRO savings, and other types of accounts, in India. The Non-Resident External (NRE) and Non-Resident Ordinary (NRO) deposits—and the newer Foreign Currency Non-Resident (FCNR) deposits—are channels available to Indians living abroad to create accounts in India. The NRE and NRO are both rupee accounts.

If you want to transfer a part of your foreign earnings to India and save it in rupees, you can open an NRE account. If you want a way to save your rupee earnings from sources in India, create an NRO account.

The Differences Between NRE and NRO Accounts

You can remit foreign currency funds to India to NRE accounts, where it will be converted to Indian rupees. However, you cannot directly deposit amounts in foreign currency to your NRO accounts. Likewise, you cannot directly deposit rupees into your NRE accounts.
NRO accounts are for money earned in India, so they are taxable under the Indian IT Act. NRE funds are earned abroad. To avoid double taxation, NRE accounts are fully tax-free (including on the interest earned).

NRO accounts can be opened as joint accounts with a Resident Indian. However, a Joint NRE account can only be created along with another NRI.

With an NRO account, if you want to repatriate the funds to your country of residence, there are various restrictions, and you can only transfer one million USD per financial year. Funds in NRE accounts are however easily transferrable to your country of residence, both the principal and the interest earned.

Which should you choose?

If you want an account to save money earned in India, open an NRO account. If you want to save funds earned abroad in an Indian bank account, open NRE accounts.

To open NRI/NRO Bank Fixed/Term Deposit, check the Fixed Deposit rates on different NRI deposit schemes. Remember, though the NRO fixed deposit interest rates are high, they are taxable in India.

NRE deposit amounts and interest are both free from taxation, and you can find FD scheme with high NRE fixed deposit rates.

Minimum tenure for NRE Fixed Deposits is one year, and premature closure before one year involves forfeit of interest. For NRO FDs, the minimum tenure is 7 days and premature closure involves penalty charges, not full forfeit of interest.

NRE Fixed deposits that are prematurely closed after one year will incur just penalty charges, normal interest rate for actual period of deposit will be paid on the FD.

The one million USD repatriation restriction applies to all NRO deposits and accounts. With NRE accounts and deposits, there are no limits in repatriation of funds.

Both in NRE and NRO accounts, the deposits are in Indian Rupees and the depositor has to bear the risk of exchange rate fluctuation.

Unless you are earning money in India, NRE Fixed Deposits might be a better choice; they are tax-free in India, and you can also easily transfer the funds back to your country of residence without any restrictions.

If you want your fixed deposit to benefit a parent or sibling in India, an NRO FD is a better choice as you can open the account jointly with a Resident Indian.

If you want to open an NRI FD, do an NRO or NRE fixed deposit rates comparison, and choose the schemes that offer the best interest rates and other deposit terms. If you want to protect yourself against exchange rate fluctuations while still saving funds in India, the Foreign Currency Non Resident (FCNR) Fixed Deposits might be the ideal choice, they allow you to deposit and maintain funds in foreign currencies like USD, British Pounds, and Australian or Canadian Dollars.

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