Indians residing abroad may often wish to build a savings corpus back home for when they return. While Indians residing within the country have many options, like fixed deposits and recurring deposits, non-resident Indians (NRIs) often don’t have the same facilities. Instead, NRIs need to first open a non-resident external (NRE) account at an Indian bank.
Using this account, NRIs can easily open fixed deposits in India while still living and earning abroad. Besides this, there is also the foreign currency non-resident (FCNR) Account, which is a type of fixed deposit specially for NRIs. So, let’s understand which type of fixed deposit is more beneficial for an NRI.
Fixed deposits in NRE accounts – How do they work?
A non-resident external (NRE) account is a bank account that non-resident Indians (NRIs) can use even while staying overseas. In this type of account, an NRI can keep their foreign income, but it gets converted into Indian Rupees.
One of the biggest benefits of these accounts is that you can open a fixed deposit and earn from the interest while still living abroad. An NRE fixed deposit is also fully repatriable. This means you can withdraw both the interest earnings and the principal from such a fixed deposit and transfer it abroad.
Another attractive benefit of opening a fixed deposit with your NRE account is that no taxes are applicable. So essentially, you will have no tax liability for this fixed deposit. However, one caveat is that the returns from such a fixed deposit are always volatile and subject to currency exchange risks.
What are FCNR deposits?
A foreign currency non-resident (FCNR) deposit is a specialised fixed deposit for those who do not want to take on additional uncertainties of currency fluctuations. Usually, foreign currencies such as USD, EUR, or AUD are considered designated currencies for FNCR deposits.
At the end of their deposit tenure, NRIs can enjoy the benefit of both the principal and the interest without any deductions.
Just like NRE fixed deposits, FCNR deposits are also fully repatriable to the current country of residence of the respective account holder. However, it should also be noted that due to lack of currency fluctuations, the interest rates offered in FCNR deposits are slightly lower than the rates offered by fixed deposits in NRE accounts.
NRE FD and FCNR FD – Main differences
So, when considering saving money in a fixed deposit back home in India, which one do you, as an NRI, choose? Let’s answer this question with a simple comparative breakdown of the two.
| NRE Fixed Deposit | FCNR Fixed Deposit |
| They are Indian Rupee based and cannot be held in any other currency. | They can be held in foreign currencies like Euro, American and Australian Dollars. |
| They have a higher rate of interest due to currency exchange risks for the depositor. | They have lower interest rates due to the absence of currency risks. |
| Their returns after the deposit tenure are, therefore, much higher. | As a result, their total returns at the end of the tenure are relatively lower. |
| These deposits are suitable for those who wish to have a large corpus in India. | These deposits are suitable for those who simply wish to accrue interest from India and repatriate those funds (keeping the same currency). |
With so many similarities and differences, both types of fixed deposits can be lucrative for NRIs. Many prominent banks have banking services tailored for both NRE and FCNR deposit accounts. So, it is also vital for NRIs to choose a trusted bank before opening their NRE accounts.
Conclusion
Both NRE and FCNR Deposits serve distinct financial purposes for NRIs. The right choice depends on your risk appetite, currency preferences, and future plans. By carefully evaluating these factors and choosing a reliable banking partner, NRIs can ensure their deposits are well-aligned with long-term financial objectives and global mobility needs.