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What Are NRE and NRO Fixed Deposits and When Should You Open Them

by janeausten

The security of investment that fixed deposit (FD) accounts offer attracts not only resident Indians but non-resident Indians (NRI). Fixed deposit interest rate is constant throughout the fixed deposit’s life so that the depositor can calculate his returns in advance and make corresponding financial commitments. Non-resident Indians can open Non-Resident External (NRE) accounts and Non-Resident ordinary (NRO) accounts to deposit their money in India.

These accounts may seem to be similar but have their unique advantages. The NRE fixed deposit rates are similar to regular fixed deposit accounts and offer several benefits to NRI depositors. As an NRI depositor, you may need clarification on NRE and NRO accounts and may look for answers to questions like the difference between NRE and NRO FDs and which account you should open.

NRE and NRO fixed deposits offer benefits like tax exemption, guaranteed growth of money, and fully repatriable funds. Here is your complete guide to the difference between NRE and NRO FDs and which account should you open.

NRE Fixed Deposits

An NRE fixed deposit is an Indian currency-denominated investment option having a deposit term of one year to 20 years. The NRE fixed deposit rates are exempt from income tax in India. The deposit can fund this account in any convertible currency.

Another benefit NRE fixed deposits offer is that the principal amount the depositor invests and the interest he earns on it over the life of his investment are fully repatriable. Just like a regular fixed deposit account, the NRI depositor can choose the frequency of payouts on his NRE fixed deposit (monthly/ quarterly, at maturity).

A mandate facility is also provided on an NRE FD to facilitate ease of operation. Depositors can partially withdraw their funds from an NRE FD in case of a financial need. Depositors can choose to have their NRE FD renewed automatically on maturity.

NRO Fixed Deposits

An NRO fixed deposit is an Indian currency-denominated term investment with a life between seven days and 20 years. NRI investors can fund their NRO fixed deposit account with an income they earn in India. Similar to an NRE FD, the investor can open an NRO FD jointly with another NRI. 

They can repatriate the funds in their NRO FD account for a value of up to USD 1 million per financial year by submitting the documents required by the bank. Fixed deposit interest rate for an NRO FD is similar to a regular FD account. A mandate facility is available on this type of FD for ease of account operation. Depositors can partially withdraw funds from an NRO FD if the need arises. Depositors can enjoy higher post-tax returns through the DTAA (Double Taxation Avoidance Agreement) facility.

Differences Between NRE and NRO Fixed Deposits

● An NRE FD is sourced from income generated outside India, while an NRO fixed deposit is funded from income generated in the country itself. Investors cannot transfer funds from an NRE account to an NRO account to open an FD.

● An NRI depositor can repatriate the principal amount and the interest earned on an NRE FD, but in the case of an NRO FD, only the interest earned is repatriable.

● The interest you earn on an NRE FD is not subject to Income Tax in the country. The interest earned on an NRO FD is liable to Income Tax in India.

● An NRI can open an NRE FD account jointly only with another NRI. If he wants to open an FD jointly with an Indian resident, he will have to open an NRO account.

You may also read – How do fixed deposits work

How to Choose Between NRE and NRO Fixed Deposits

The source of income is the first parameter to choose between an NRE fixed deposit and an NRO fixed deposit. If you want to fund your investment from the income earned from a foreign source, you can opt for an NRE FD, and if the source of income for this investment is Indian, you can opt for an NRO FD.

The choice between the two FD accounts also depends on your preference between repatriable and non-repatriable accounts. Both these fixed deposit schemes offer stable and high-interest returns to investors and allow growth on their idle funds.

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