When an Indian moves to another country, their resident Fixed Deposit becomes invalid. This means that they cannot access the funds in the FD. In this case, they need to convert the account into a Non-Resident Indian or NRI Account. That way, they can continue their investment journey even when away from the country. Moreover, they can choose from three types of NRI Deposit. The two most common ones are:
- Non-Resident External FD
- Non-Resident Ordinary FD
However, since these two have similar-sounding names, people often get confused between them. However, their features and benefits differ considerably. Here is a quick guide on how they are different:
NRE Fixed Deposit Account
An NRE Deposit automatically converts your deposits into Indian Rupees. It also maintains your funds in INR throughout the deposit tenure. The following are its other notable features:
- Repatriation
An NRE FD is fully repatriable. You can withdraw the principal amount and the interest earned whenever needed.
- Taxation policy
In India, the interest earned through such an FD is exempt from taxes. This lets your interest income grow effectively.
- Tenure
The tenure of NRE FDs ranges between a year to 10 years. However, the holder could extend it upon maturation.
- Minimum deposit amount
The minimum deposit amount in such FDs ranges between INR 5,000 to INR 25,000. It varies between banks.
- Eligibility criteria
Only global Indians or Indian-origin people can open an NRE FD.
NRO Fixed Deposit Account
An NRO Fixed Deposit maintains deposited funds in the currency of origin. It is ideal for NRIs who have regular income sources in India. The following are its features:
- Repatriation
An NRO FD does not allow repatriation of the principal investment. However, it does allow the holder to transfer the interest earned into another foreign account.
- Taxation policy
The interest earned in an NRO FD is not exempt from taxes. According to the Income Tax Act, it is taxable in India.
- Tenure
Ideally, the tenure of an NRO FD ranges between seven days to 10 years. But the holder could extend the duration if need be.
- Minimum deposit amount
The minimum deposit amount lies anywhere from INR 25,000 to INR 1,00,000. It entirely depends on where you choose to open the FD. Check your bank’s website once to gain further clarity.
- Eligibility criteria
Only NRIs of Indian nationality or Indian origin can apply for an NRO FD. The same requirement applies to an NRO Account.
Tip for choosing one
NRE and NRO FDs have their respective benefits. However, in specific cases, one may surpass the other. It all depends on your financial situation and investment requirements. Therefore, you need to consider your requirements before you finalise one.
