NRO, NRE or FCNR? Selecting the Best NRI Fixed Deposit

Fixed Deposits or FDs have been a traditionally popular investment option in India. As this risk-free investment avenue enables you to earn fixed interest over a fixed tenure, it perfectly matches the conventional conservative investor profile.

Apart from resident Indians, FD accounts continue to remain a popular choice among NRIs too. There are now have many different types of fixed deposit accounts, namely NRO, NRE, and FCNR, where NRIs can park their foreign earnings and generate fixed returns.

But what should an NRI select from the three? Is there one FD account that is better than the rest? Take a look-

What are NRO, NRE, and FCNR FD Accounts?

Here is a quick overview of what these FD accounts are-

1. NRO FD

NRIs commonly use an NRO, or Non-Resident Ordinary savings account for depositing their Indian earnings. The savings deposited into an NRO account can be used for opening an NRO FD. Here, the source of funds would be the NRO savings account, and the FD account will be maintained in INR. 

2. NRE FD

An NRE or Non-Resident External savings account is used by NRIs for transferring their foreign earnings to India. This is also a Rupee denominated account wherein the foreign funds are converted into INR as per the current exchange rate. Any deposit in this NRE savings account can be used for opening an NRE FD.

3. FCNR

The FCNR or Foreign Currency Non-Resident is a type of term deposit account dedicated to NRIs. It allows NRIs to open an FD account in popular foreign currencies like USD, EUR, and GBP. The deposits are in foreign currencies, and even the interest generated on the deposit is in the same foreign currency.

What Should You Select Between NRO, NRE, and FCNR FD?

There are a few important factors based on which you can choose NRI deposits. They are as follows-

●        Taxation

If you open an NRO FD account, TDS would be deducted from the interest amount at the rate of 30%. With NRE and FCNR FDs, the interest is tax-free. However, if you repatriate the funds back to your current country of residence, you might then have to pay taxes as per the tax laws of that country.

●        Repatriability

With an NRO FD, the principal and interest amount would be deposited into the NRO savings account of the NRI. From this account, the NRI can freely repatriate the interest income. However, only up to USD 1 million can be repatriated to a foreign country in a financial year. Both NRE and FDNR FDs allow free repatriation of interest and principal amount.

●        Interest Rate

Another vital consideration while choosing NRI fixed deposit is the interest rate. As compared to an FCNR account, NRO and NRE FD accounts offer higher interest rates. In an FCNR account, the interest rate also varies based on the foreign currency you choose for your account.

●        Currency Risk

With an NRO or NRE FD, there is always a currency risk. For instance, if the Rupee depreciates at the time of your FD maturity, the amount you repatriate to a foreign country after converting it from INR can be lower. FCNR FDs do not have such currency risks as it is a foreign currency account.

Opening an NRI FD in India

While all the different FD options for NRIs have their benefits, you should select one that best matches your requirements. You can consider NRE FD for its higher interest rate and zero taxes in India. But there will be a currency risk involved in the process.

If you are a conservative investor who wants to repatriate the funds after maturity, an FCNR account can be a better choice as these accounts are free from currency risks and do not attract any taxes in India. On the other hand, if you have income sources in India and NRO savings account for depositing the same, an NRO FD is the way to go.