Finance

NRO, NRE or FCNR Term Deposit – Which One to Pick

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Term deposits are known for being one of the safest investment avenues. Read on to know the best term deposit account for NRIs.

Many Indians consider fixed deposits a safe investment option to earn valuable returns; it is a popular choice among risk-averse investors. But, the fixed deposits are not limited to Indian residents, even NRIs (non-resident Indians) can open and maintain an NRI fixed deposit account.

NRIs looking to open term deposit accounts in Indian banks can choose between NRO, NRE and FCNR accounts. Each of these accounts has distinct features and serve different purposes.

NRE Term Deposit Account

The non-resident external account can be maintained as a savings account, current account, or term deposits. The primary purpose of this NRI deposits account is to help the NRIs invest their foreign earnings in Indian currency and use them to manage their expenses and other financial commitments in India.

Features

  • The interest rate for NRE FD is higher than the interest rate offered to resident Indians.
  • Withdrawals can be made only in INR.
  • At the time of maturity, the deposit value is converted into Indian currency as per the prevailing exchange rate.
  • The full deposit value, both the principal value and the interest is exempted from tax.

NRO Term Deposit Account

The non-resident ordinary term deposit account allows you to invest and manage your income in India in Indian banks and maintain the earnings in Rupees.

Features

  • This NRI fixed deposit account is an excellent investment option to park your savings in Rupees, get valuable, and risk-free returns.
  • Upon maturity, the withdrawals from this term deposit account can be made in INR only.
  • The interest earned from the deposit is taxable in India.

FCNR Term Deposit Account

The foreign currency non-resident account is a term deposit account that allows you to hold your overseas earnings in Indian banks without the risk of converting the amount to INR.

Features

  • The deposits can be made in only specific foreign currency – Japanese Yen, Euro, Australian Dollar, Canadian Dollar, American Dollar, British Pound Sterling.
  • The withdrawals are also made in foreign currency. Thus, it helps you avoid the risk of loss due to currency exchange.
  • The interest earned from your deposits in the FCNR account is non-taxable in India.

Here is a comparison between NRO, NRE, and FCNR term deposit accounts.

  NRO NRE FCNR
Deposits currency Indian Rupees Foreign Currency Foreign Currency
Withdrawal Currency Indian Rupees Indian Rupees Foreign Currency
Exchange rate fluctuation risk Since the transactions are made in Indian Rupees only, there is no exchange rate fluctuation risk involved. Since the deposits are converted to INR, it is exposed to exchange rate fluctuation risk. Since the transactions are made in foreign currency only, there is no exchange rate fluctuation risk involved.
Tax on interest earned Taxable (TDS applied at 30%) Tax-free Tax-free
Repatriability The interest earned from the deposits is repatriable, but the principal repatriation is restricted to a certain limit. The full amount (principal and the interest earned) is freely repatriable. The full amount (principal and the interest earned) is freely repatriable.

Thus, the NRO, NRE, and FCNR accounts have different features, and it advisable to choose the right one to suit your needs.

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