What varies in NRE, NRO, and FCNR Fixed Deposit Accounts?

Fixed deposits in India are considered one of the safest and beneficial investment options. People like to enjoy a decent interest rate on FD, which is the main reason that makes it a preferred choice for risk-averse investors. FD investments are not only restricted to the residents of India but the Non-resident Indians (NRIs) can also park their funds in NRI fixed deposit (FD) accounts, which are of different types i.e. Non-Resident External (NRE) Account, Foreign Currency Non-Resident (FCNR) Account, and Non-Resident Ordinary (NRO) Account.

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Do not get confused today we are going to elaborate on the difference between NRE vs. NRO vs. FCNR Accounts their purpose and how they are different from each other for Indians living in foreign lands.

NRO vs. NRE vs. FCNR

If you are an NRI, NRO vs. NRE vs. FCNR account is no longer a choice but a regulatory necessity for you. You would need to pick between these term deposits as per your needs and understand the rules and regulations regarding the income earned in India or abroad. There are some technicalities that you need to know and decide where you want to park your funds:

Details NRO NRE FCNR
Deposit Currency Indian Rupees Foreign currency Foreign Currency
Withdrawal Currency Indian Rupees Indian Rupees Foreign Currency
Taxable in India Interest earned is taxable Interest earned is not taxable Interest earned is not taxable
Foreign Exchange Rate Risk No risk Risk due to fluctuating FER No risk
Reparability Transfer of interest and principal amount within specified limits Repatriable Repatriable

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Debt Mutual Fund
Guaranteed Return Plans
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Yes
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Fixed Deposits
Returns Before Tax
7% (TAXABLE)
Returns After Tax
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Guaranteed Returns
Yes
Life Cover
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Tax on Profit
Taxable
Risk
Low Risk
Debt Mutual Fund
Returns Before Tax
8% (TAXABLE)
Returns After Tax
5.5%
Guaranteed Returns
No
Life Cover
No
Tax on Profit
Taxable
Risk
High Risk
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The Difference between NRE & NRO & FCNR accounts

If you are an NRI you can open a joint NRO account with one or more Indian citizens or NRIs. However, an NRE account can only be opened with an NRI:

  • An NRI can open an NRE bank account in India in his name to manage his foreign earnings. On the other hand, an NRO account can be opened in India in his name NRI, to park the income earned through rent, pension, dividend, interest, etc. in India

  • NRE accounts offer tax exemption benefits and their balance or interest earned is not taxable. As per the Income-tax act 1961, NRO interest is taxable at 30%

  • The principal amount in an NRE account and the interest accumulated can be transferred to a foreign account. Whereas in an NRO account, the interest amount can be ousted; however, the principal amount, can be remitted only up to 1 million USD in a fiscal year

  • You can deposit the income generated outside India into any of these accounts. However, the income generated in India can only be deposited in an NRO account. Money from both the accounts can only be withdrawn in INR

  • The exchange rate does not apply while depositing or withdrawing from an NRO account; whereas, in an NRE account, there is risk involved due to currency rate fluctuations

NRI’s can use NRE account to invest and manage foreign income in India, while they can invest in FCNR to manage their investment and expenses outside India. 

For example, if you are a Non-Resident Indian (NRI) living in Singapore and have a dependent family member in India, then you can transfer money to your Non-Resident External (NRE) account and Non-Resident Ordinary (NRO) account.

Let’s understand them in detail:

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What is an NRE Account?

NRE Accounts are opened to deposit overseas earnings in India. As per the RBI, an NRE account can only be opened by an NRI. The holder of a power of attorney cannot open an NRE account. And if you don’t have an NRE account you can open one on your next visit to India. You can also open a joint NRO Account with residents or NRI. For instance, if you have an SBI fixed deposit account you can also open SBI NRE Account.  You can also check the interest rate on NRE deposits.

What is an NRO Account?

NRO Accounts or Non-Resident Ordinary Rupee Accounts can be opened to deposit income earned in India by an NRI. You can also open a joint NRO Account with residents or NRI. You cannot deposit overseas earnings in an NRO Account.

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What is an FCNR Account?

Foreign Currency Non-Resident (FCNR) account permits you to save money overseas earnings in a foreign currency in a fixed deposit. FCNR accounts protect from forex rate risks and the deposit is done in a foreign currency. FCNR account’s interest earned help in saving income tax. FCNR account can be opened with two or more NRI joint account

All you need to do is some research regarding the bank where you want to open the account in India. All the public sector and private banks in India provide NRO, NRE & FCNR accounts to all the Non-resident Indians. All the banks almost follow the same rules and laws and rules, the only difference is in the customer support and services that vary from one bank to another,

The Bottom Line

Being an NRI you cannot open normal savings or FD or RD accounts in a Bank in India. You can only open an NRO or NRE or FCNR account as per your needs. If your total income includes the income earned in India and you want to manage it within the country, you can opt for an NRO account. An NRE account can be opened if you want to transfer your foreign income to India and want to avoid taxation liabilities. And if you want to manage your investments outside of India then a Foreign currency Non-resident or FCNR account is suitable for you.

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