Difference Between NRE And NRO Fixed Deposits
Non resident Indians (NRIs) have a variety of choices to open and operate a bank account out of India. The two most popular banking facilities offered to the NRIs are the Non Resident External (NRE) account and the Non Resident Ordinary (NRO) account. While the NRE account is a foreign currency account, the NRO account is a rupee account. Let us look at NRE FDs, NRE FD rates, NRO FDs and NRO FD rates and the pros and cons of each option.
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