Difference between NRE and NRO FDs
Many Non-Resident Indians (NRIs) hold either NRO (Non-Resident Ordinary) or NRE (Non-Resident External) accounts, which is a popular term deposit option that allows them to earn a good rate of return and park funds in India.
NRE, or Non-Resident External accounts and NRO or Non-Resident Ordinary accounts, are special account options that are only available to NRIs.
They come with a number of benefits including tax exemptions, full reparability, etc. In this article, we will explore the difference between an NRE and an NRO account.
What is an NRE account?
An NRE FD is a type of term deposit account where the NRI makes deposits from overseas and remit the same in an Indian account, where the currency will be converted into rupees.
An NRE deposit is basically a term deposit account held to transfer foreign earnings.
What is an NRO account?
An NRO account is usually opened by an NRI in order to manage the income that is earned in India. This income can be in the form of rent, pension or other types of dividends.
The interest earned from these deposits are taxable.
Difference between an NRE and an NRO account
Parameters | NRE | NRO |
Repatriation | Fully repatriable (principal and interest) | Restricted repatriability |
Joint Holding | Cannot be opened jointly with an Indian resident | Can be opened jointly with an Indian resident |
Tax Liability | Free from tax | Subject to tax |
Transfer of Funds | Funds transfer permitted to both NRO and NRE accounts | Funds transfer permitted to only NRO accounts |
Interest Rates | High interest rates | Lower interest rates when compared to an NRE account |
Sources of Funds | Can be opened with income earned abroad and converted into Indian rupees | Can be opened with income earned within the country only |
Taxation - NRO fixed deposits attract taxes as per Indian laws. The interests earned from an NRO FD are taxed according to the Income Tax Act, 1961 at around 30%, which is quite high when compared to domestic FD rates.
NRE fixed deposits do not attract taxes on the principal or interests earned from the deposits. Consequently, NRE fixed deposits are completely tax-free. This difference makes an NRE FD a better option than its NRO avatar.
Repatriation - NRO FDs do not offer repatriation option on the principal investment. Only the interest earned from your NRO FD can be transferred to a foreign account.
NRE fixed deposits offer the option for full repatriation of funds including both principal and accrued interests to a foreign account. These accounts therefore simplify the process of transferring principal and earned interests from an Indian account to a great deal.
Joint accounts - Any two NRIs can opt for either a NRO or an NRE joint account without any complications. However, an NRI can only open an NRO account jointly with an Indian resident citizen.
NRE fixed deposits cannot be opened jointly with a resident Indian citizen, even if that person is a direct family member.
Deposit and withdrawal - Only funds originating in India can be used to open an NRO account, and consequently, an NRO fixed deposit. You cannot transfer funds from abroad to start a fixed deposit from your NRO. However, funds from an NRE account can be transferred into an NRO account for the purpose of opening a fixed deposit.
NRE accounts are opened by remitting foreign currency earned from abroad directly into the fixed deposit account. NRE fixed deposits are restricted from being opened by transferring currency from an NRO account or a resident savings account.
Interest rates - The rate of interest in NRO and NRE accounts may vary according to the bank you are applying in. As such, it is imperative that you check the available rates to find the option with the highest returns for you. Typically, an NRE or NRO FD is offered with maturity between one to 20 years.
Overall, the choice between an NRE and an NRO fixed deposit boils down to your preferences according to the benefits that you can avail out of the two types of accounts. A point to remember here is that NRE accounts are used to park foreign earnings in Indian accounts and in INR, while an NRO account is used to park funds earned from India.
Top NRE FD Rates Offered by Banks
Below are the top NRE FD interest rates offered by banks for deposits less than Rs.2 crore.
Bank | 1 Year (p.a.) | 2 Years (p.a.) | 3 Years (p.a.) | 5 Years (p.a.) |
State Bank of India (SBI) | 6.80% | 7.00% | 6.50% | 6.50% |
Bank of Baroda | 6.75% | 6.75% | 6.75% | 6.50% |
Bank of India | 7.25% | 6.85% | 6.00% | 5.00% |
Central Bank of India | 6.75% | 6.50% | 6.25% | 6.25% |
Indian Overseas Bank | 6.50% | 6.80% | 6.50% | 6.50% |
Top NRO FD Rates Offered by Banks
Bank | General Public (p.a.) | Senior Citizens (p.a.) |
Axis Bank | 3.00% to 7.10% | 3.50% to 7.75% |
Bank of Baroda | 3.00% to 7.15% | 3.50% to 7.65% |
State Bank of India | 3.00% to 7.10% | 3.50% to 7.60% |
Bank of India | 3.00% to 7.25% | 3.50% to 7.75% |
Punjab National Bank | 3.50% to 7.25% | 4.00% to 7.75% |
IDBI Bank | 3.00% to 6.80% | 3.50% to 7.30% |
How to Choose between NRE FDs and NRO FDs
NRIs will have to choose between NRE FDS and NRO FDs based on their requirements. It is also crucial to choose right bank to open an NRO or NRO FD account.
Go for an NRE FD if you want to mainly park funds from foreign countries and want the currency to be fully repatriable.
On the other hand, it is best to go for an NRO deposit if you want to park your Indian earnings.
FAQs on Difference between NRE and NRO FDs
- Will I be required to pay any fees if I wish to open an NRE or an NRO account?
No, you will not be required to pay any fees in order to open an NRE or an NRO account.
- Can I open more than one NRE account in my name?
You can open only one NRE account in your name with a bank. If you have bank accounts with other banks, then you can open an NRE account with them.
- Will senior citizens earn additional interest on opening an NRE or an NRO account?
Whether senior citizens will receive additional interest will vary from bank to bank. However, there is a possibility that senior citizens may not receive additional interest on their deposits in NRE or an NRO account.
- Are NRE and NRO accounts taxable?
While NRE accounts are not taxable, the NRO accounts are taxable at 30%.
- NRE or NRO? Which of the two is riskier?
NRE accounts are riskier as the exchange rate may rise or fall depending on the foreign exchange rates which fluctuate from time to time.
Karishma VP has over a decade of experience in content writing which includes over five years specializing in the field of personal finance. Her career in BankBazaar has given her the opportunity to research and write on a wide variety of financial products ranging from credit cards and home loans to insurance policies and government schemes. She believes that an understanding of personal finance is an important step to leading an independent, empowered life. This has led to her being passionate about learning more about the BFSI sector and writing about it as clearly, concisely, and accurately as possible to make it accessible to a larger audience through BankBazaar. |
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