Non Resident Ordinary (NRO) fixed deposits
Bank FDs have long attracted the interest and participation of the NRIs in India due to their attractive returns, relative safety and the ease of access. Here are some key features of the NRO FDs.
- NRO FDs are suited to NRIs who have a regular stream of income flowing from sources in India. This could be in the form of rent, commissions, fees, etc.
- Being a rupee account, principal repatriation is not allowed but interest can be transferred abroad subject to a limit. Such NRO FDs can be held jointly with Indian residents.
- Interest rates on NRO FDs are quite attractive compared to current and savings banks account rates. Some of the key NRO FD rates offered by banks are captured in the table below.
|Bank Name||NRO FD rates||NRO FD rates for senior citizens|
|Bank of Baroda||4.50% - 7.30%||4.50% - 7.30%|
|Canara Bank||5.25% - 7.25%||5.25% - 7.50%|
|Punjab National Bank||4.25% - 7.00%||4.25% - 7.00%|
|State Bank of India||5.50% - 7.00%||Not Applicable|
The rate of interest on NRO FDs will vary from bank to bank and they will be applicable to different customers at differential rates. It entails a minimum deposit of Rs.1 lakh. One thing needs to be remembered that NRO FDs are resident deposits and the interest amount is entirely taxable in the hands of the NRI at the peak rates of applicable to them (30% for eg). They also attract additional surcharge of 10% if the interest earned in a particular financial year is more than Rs.10 lakhs.
Non Resident External (NRE) Fixed Deposits
NRE FDs are typically foreign currency accounts and are freely repatriable. Unlike the FCNR deposits which is denominated in dollars / Pounds / Euro / Yen, the NRE account is still denominated in rupees only. But, the NRE deposits can only be made out of money earned out of India. Here are some of the key features of an NRE FD.
- NRE FDs are suited to NRIs who would prefer to have a reparable fund source, and are looking for a secure investment.
- NRE FDs are available in flexible tenures ranging from 1 year to 10 years and banks normally even offer loans and overdraft facilities against these NRE FDs.
- Most banks offer maximum and minimum deposit permissible in case of NRE FDs and banks can also offer long term NRE FDs with 5-year lock-in for Section 80C benefits.
- Interest rates on NRE FDs are quite attractive compared to NRO FDs but the foreign currency risk is on the depositor. Some of the key NRE FD rates offered by banks are captured in the table below.
|Bank Name||NRE FD rates|
|Union Bank of India||6.50% - 6.75%|
|Canara Bank||6.20% - 6.45%|
|Punjab National Bank||6.25% - 6.75%|
|State Bank of India||6.40% - 6.50%|
The rate of interest on NRE FDs does vary slightly but are more standardized compared to the range of NRO FDs. The big advantage is that being NRE deposits, the interest earned is entirely tax free in the hands of the depositor.
How to make a choice between NRO FDs and NRE FDs?
The choice would largely depend on the exact requirements of the NRI and whether they are looking to be earning rupee flows in India or just foreign flows. Also, it will depend on whether the NRI will prefer repatriable account or a non-repatriable account. Let us look to compare and contrast the NRE FDs versus NRO FDs through a comparative table.
|NRE Fixed Deposit (NRE-FD)||NRO Fixed Deposit (NRO-FD)|
|An NRE FD is a term deposit account where the NRI makes deposits from abroad and remits to an Indian account, where the currency is converted into rupees||An NRO FD is opened by an NRI to manage the income earned in India. This income can be in the form of rent, pension or other types of dividends|
|The interest earned on the NRE Fixed Deposit is tax-free without any limits in the hands of the NRI since these are foreign currency accounts||The interest earned on NRO FD is taxable at the peak rate of taxation like resident accounts. There is also an additional surcharge of 10% if interest income exceeds Rs.10 lakhs|
|Both principal and interest in the NRE-FD are fully repatriable||There are restrictions on repatriation of interest up to a specified sum. The principal is not repatriable|
|An NRE FD cannot be jointly with a resident Indian since it is a foreign account||NRO FD can be jointly opened with a resident Indian since it is a normal rupee account|
|NRE accounts can only be created out of income earned outside India. Foreign currency transfer has to be done into the NRE account where it is converted into Indian rupees||NRO is suited for NRIs who have income earnings in India since they can be deposited. However, income earned abroad can also be deposited into an NRE account, but becomes non-repatriable|
|Go for an NRE FD is you want to park funds from foreign countries and want the currency to be fully repatriable||It is best to go for an NRO deposit if you want to park your Indian earnings|
The moral of the story is that both NRE FDs and NRO FDs have their own relative merits. The rates of interest offered on both the accounts are attractive compared to the rates on other savings accounts and that makes them attractive to the NRIs. Of course, the final deciding factor is the nature of flows of the NRI and whether such flows arise predominantly in India or abroad.