NRE, NRO, or FCNR Bank Account: What’s your Best Choice?

NRIs are eligible to hold and maintain FCNR, NRE, and NRO bank accounts in India. All three banking facilities have different features and characteristics. Let us understand each option.

Most Non Resident Indians (NRIs) want to maintain a financial foothold in the homeland. It could be for investment, remitting foreign earnings, generating wealth, or transferring funds to loved ones.  The easiest way is to open a bank account designated for NRIs.

It makes the management of monetary matters while living abroad a piece of cake. As per the RBI (Reserve Bank of India) regulations, an NRI can operate NRE, NRO, and FCNR (B) accounts. Here is a quick look at the distinctive features of the three banking options for NRIs.

Non-Resident External (NRE) Account

This is a rupee-denominated account available in savings, recurring, and fixed deposits. It is designed for NRIs who wish to send their overseas earnings to India. Money can be transferred in any currency, which gets automatically converted to INR at the prevailing foreign exchange rate. This account is tax-free.

Another plus is that the principal and interest earned on the NRE account can be freely repatriated from India to the country of residence. You can hold the account jointly with another NRI or resident Indian.  And yes, you can avail loans/overdrafts against an NRE fixed deposit.

Non-Resident Ordinary (NRO) Account

NRO account is also maintained in INR and can be held in savings, current, recurring, or fixed deposit format. The account is created primarily for NRIs to park their earnings from local sources such as rent, pension, dividends, wages, etc.   Funds can be remitted in both foreign and Indian currency but withdrawn only in INR. Unlike NRE accounts, interest earned on the NRO account is subject to Tax Deductible at Source (TDS).

In terms of repatriation, the maximum limit is $1 million per calendar year after deducting applicable taxes. The NRO account can be opened jointly with other NRIs and resident Indians. In the case of the latter, the mode of operation is on a “Former or Survivor” basis only.

Foreign Currency Non-Resident (FCNR) Account

The FCNR (B) is a term deposit for foreign currency with a tenure ranging from 1 to 5 years. Depositions can be made across 9 free convertible currencies (U.S. Dollar, Canadian Dollar, Australian Dollar, Pound Sterling, Euro, Japanese Yen, Swiss Franc, Hong Kong Dollar, and Deutsche Mark). The account earns a fixed rate of interest till maturity.

However, the FCNR rate can vary as per bank norms, currency, and tenure. Premature withdrawals are permitted but come with a small penalty. The term deposit is ideal for investing money in foreign currency and garnering high returns without the risk of forex rate fluctuations.

Accountholders can freely repatriate the entire deposit (principle & Interest) without any restrictions. The FCNR account is exempted from tax and provides loans and nomination facilities. It can be held jointly with fellow NRIs or an Indian resident who is a close relative.

Choose the Right Account for Your Banking and Saving Needs

In a nutshell, the three NRI bank accounts have well-defined features. The NRE account is tax-free and allows free repatriation of funds, whereas an NRO account provides the flexibility of depositing foreign currency and maintaining earnings from domestic sources.

The FCNR deposit that allows no conversion of money is an excellent option for investment and building a huge corpus in the foreign denomination. As an NRI, it’s best to assess your needs and then decide which banking facility makes more sense for you. 

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