6 Differences Between NRE and NRO Fixed Deposits

[Shashank Bhaskar]

Opening NRI fixed deposits helps you connect with your home country. It allows you to manage your foreign and Indian income. It is a great way to source your family for emergency finance like medical bills, higher education, daily expenses, etc. You can even use it to make investments in mutual funds, stocks, direct equity, real estate, etc.

Now, you can open them as Non-resident external or Non-resident Ordinary fixed deposits. Both are the account types available for NRIs in Indian banks. Understanding the difference should help you decide.

Here are some distinctive factors: 

Fund transfer and withdrawal: You can open an NRE FD by transferring income earned from abroad. It allows you to manage your foreign earnings. On the other hand, NRO fixed deposit only permits funds originated in India from sources like rent, commission, etc. You can also transfer funds from an NRE account to an NRO account for opening the fixed deposit. You get to withdraw from both the FDs only in Indian currency. 

Taxation: NRO FD is subject to the tax regulations of the Income Tax Act. The tax of up to 30 per cent gets deducted on its returns. This is higher than the domestic fixed deposits. As for NRE, the principal amount and interest earned have tax-exemption benefits. 

Repatriation: The principal amount with interest earned is fully transferable in the NRE term deposit. In the case of NRO, only the principal amount is allowed for repatriation. This amount gets limited due to tax deduction by the bank. 

Interest rates: The NRE FD interest rates are generally higher compared to NRO fixed deposits. However, they vary from bank to bank. It is best to visit the various banks’ website to check their policies. This enables you to distinguish your returns accurately. It also helps you compare and shortlist. 

Joint holding rules: As NRI accounts are external, you open them only with another NRI or person of Indian origin residing abroad. The NRE is an Indian account holding your Indian income. Therefore, you can open it only with a resident Indian. 

Suitability: In the end, it all boils down to your needs and preference. You should opt for NRE term deposits to manage your foreign income in your home country. If you wish to benefit from NRO FD interest rates on your Indian earnings, then NRO deposits are the right choice. 

Both of these NRI FDs serve different purposes. While NRE is ideal for holding foreign currency without conversion, NRE is an excellent option for Indian funds.