A fixed-deposit account has always been a popular choice among investors due to its safety and guaranteed returns. As for NRIs, they can open a fixed deposit as a fixed rupee account or a fixed deposit foreign currency account. Under fixed rupee account, NRE (Non-resident external) and NRO (Non-resident ordinary) FD accounts can be opened with attractive rates, as per the requirements of an individual.
Let’s look at the differences between NRE and FRO fixed deposit accounts:
1. Sources of Funds: An NRE term deposit can be opened with the income generated outside India by converting it to Indian rupees. An NRO deposit can be opened with income generated within India from different sources such as rent, commission, etc. Also, funds from an NRE account can be transferred to the NRO account for starting a fixed deposit.
2. Repatriation: Both, the principal amount and interest earned, are completely repatriable in the case of the NRE account. For NRO accounts, only the interest earned is repatriable and not the principal amount. Also, the interest may be repatriable up to a limit specified by the bank.
3. Joint Holding: An NRE fixed deposit account, being an external account, can be jointly held by an NRI with another NRI but not with any Indian resident. In the case of the NRO FD account, it can be held jointly with an Indian resident.
4. Tax Liability: The principal amount, as well as the interest earned, is completely tax-free for NRE FDs whereas, for NRO deposits, the interest is taxable as per the Income Tax Act 1961. Also, the Tax liability on NRO deposits is comparatively higher than domestic term deposits.
5. Interest Rates: Interest rates of an NRE FD can be generally higher and attractive than NRO FDs. The rates may vary across different banks and maybe slightly higher for senior citizen NRIs. You can check for the rate of interest by visiting the websites of different banks in which you are interested in picking a suitable scheme for yourself.
Which Fixed Deposit NRO or NRE is Suitable for me?
If you wish to invest your overseas income in the Indian rupee form, NRE FD will be a suitable option for you. And if you have income sources in India such as through rental properties, interests, or dividends, etc., NRO FDs will be more suitable for you. Also, if you do not intend to transfer your deposit amount overseas in the future, NRO FDs should be preferred.
A Term-Deposit with Multiple Benefits
Both NRE and NRO FDs have their own benefits as per the requirements of the investors. Apart from the general benefits, most of the banks also offer loan facilities through which you can avail loan equivalent to as much as 90% of your deposit amount at attractive rates