Investing is all about trade-offs. In most cases, investors are trading off risk for returns or vice versa.
But for NRIs, trade-offs are not just limited to risk and returns. Factors like repatriation, taxation, currency risk, easy of investing etc. need to be traded off.
However, there's one investment option that gets you the best of most, if not all, worlds: NRE FDs.
Low risk. Check!
Moderate returns. Check!
100% repatriable. Check!
Straightforward investing, withdrawal and taxation. Check!
A Non-Resident External (NRE) account helps you manage your foreign income in India. Since the income is not earned in India, it is tax-free. NRE Fixed Deposits (NRE FDs) help you earn as high as 8% tax-free interest!
What are Non-Resident External Fixed Deposits (NRE FDs)?
NRE fixed deposits help you deposit your foreign income in India and earn high interest on it. It is a rupee-denominated deposit account.
NRIs, PIOs, and OCIs can invest in NRE deposits using their NRO and NRE accounts. You can open an NRE FD account with funds remitted to India through banking channels.
You can pick a suitable tenure for NRE fixed deposits based on your investment preference. The interest you earn from the NRE FDs is tax-free in India. The interest and principal amount are fully repatriable to your country of residence.
Features of NRE FDs
The following are the key features of NRE FDs:
- Tenure: 1 to 10 years
- Minimum and maximum deposit: Rs 20,000 to no upper limit. The limits may vary from bank to bank.
- Interest rate: 4.5% to 8%
- Auto-renewal facility: Available
- Loan against NRE FD: You can take a loan up to 90% of the deposit amount
- Nomination facility: Available
- Premature withdrawal: Available, however, subject to individual bank rules
- Deposit Insurance and Credit Guarantee Corporation (DICGC): NRE FDs upto Rs 5,00,000 are covered under DICGC insurance.
Why NRE FDs Can Be Your Secret Weapon
The following are the benefits of investing in NRE FDs:
Tax-free interest
The interest you earn from NRE FD investments is completely tax-free in India.
Full repatriability
You can fully repatriate the principal and interest back to your country of residence without any restrictions.
Higher interest rates
You can enjoy higher interest rates on NRE FDs compared to the regular savings account and other foreign FDs.
Flexible tenure
You can pick a tenure that best suits your needs based on your investment goals. NRE FDs have a flexible tenure that ranges from 1 to 10 years.
Ease of operation
You can invest in NRE FDs from the comfort of your home. You can use the digital banking facilitates to open, renew, or close accounts online.
NRE FD Interest Rates of Top Banks in India
How are NRE FDs Taxed?
Following are the tax implications and benefits offered by NRE FDs:
- Interest is tax-free in India: The interest you earn on NRE FDs is exempt from tax in India.
- Tax in the country of residence: Some countries tax global income, such as interest on FDs. Thus, you must know the prevailing tax laws in your country of residence.
- No Tax Deducted at Source (TDS): No TDS is deducted from your NRE FD investments in India.
- Wealth tax exemption: Your principal investment in NRE FDs does not attract any wealth tax in India.
- No gift tax: If you gift your NRE FDs to Indian residents, the deposit is tax-free for the recipient.
Tips to Maximise NRE FD Returns
Here are some pro tips to maximise your returns on NRE FDs:
- You must regularly monitor FD interest rates and ensure your deposit rate is good. Otherwise, consider moving to a different bank or scheme. Premature withdrawals will only make sense if you find an NRE FD with substantially higher interest rates.
- You can opt for cumulative FDs that reinvest the interest. Your interest gets compounded, and you can earn higher returns.
- Consider FD laddering strategy. FD laddering means investing in multiple FD schemes with varying maturity tenures. This way, you can optimise your returns.
How to Open Your NRE FDs in India
- Choose the right bank: Many nationalised and private banks offer NRE FDs. Picking the right one is crucial. If you have a good relationship with a bank, you can open an FD account with them. Otherwise, opt for a popular and recognisable bank with competitive interest rates, good digital presence and customer support.
- Opt for online or offline application: You can open an NRE FD account online or by visiting overseas or Indian branches of the bank.
- Documentation: Gather all the necessary documents like application form, passport copy, proof of NRI status, and address proof.
- Select FD tenure: NRE FD tenure ranges between 1 year to 10 years. Depending on your investment goals, pick a tenure that matches it.
- Nomination: Nominate someone for smooth fund access in unforeseen circumstances.
- Initial deposit: Decide on the deposit amount you wish to invest in the NRE FD.
- Review and finalise: Make sure all your details are accurate and submit the application.
Conclusion
NRE FDs offer a secure and lucrative investment option for NRIs, combining attractive interest rates, tax savings, and repatriation flexibility.
NRE FDs are rupee-denominated, so the deposits are immune to foreign exchange rate fluctuations. Thus, this account helps hold money in Indian rupees for future expenses like purchasing property or retirement.
At iNRI, you can explore our theme, 'Alternative to Bank FDs'. This theme focuses on shortlisting mutual funds that can offer higher returns than FD by keeping the risk to a minimum. Talk to our experts, who can help you pick the right funds for your investment goals and generate higher returns than FDs.
NRE Fixed Deposit (FD): Frequently Asked Questions (FAQs)
What will happen to my NRE fixed deposit if I return to India?
Upon your return to India, you can hold on to your NRE fixed deposits until maturity.
Can I take a loan against my NRE fixed deposit?
Yes, you can take a loan up to 90% of the deposit amount against your NRE FD.
What currencies can I use to fund an NRE fixed deposit account?
You have the flexibility to deposit funds in any currency. However, they will be converted to INR.
Can I have 2 NRE accounts?
No, you cannot have 2 NRE accounts. Each individual can have only one NRE account in their name.
Is NRE FD tax-free?
Yes, NRE FD deposits are tax-free in India. However, global income can be taxable in your country of residence.
How are NRE FDs different from regular FDs?
Both NRE FD and regular FD are term deposits. However, NRE FDs are exclusively for NRIs.
Can I break my NRE FDs before their maturity?
Yes, you can prematurely withdraw your NRE FDs. However, this may attract penalties (reduced interest rates).
Can I transfer funds from my NRO account to my NRE FD?
You cannot transfer funds from the NRO account to the NRE FD.
What is the frequency of interest payments on my NRE fixed deposit account?
Interest payment frequency for NRE FDs is monthly and quarterly. However, for the cumulative option, the interest payment is at the time of maturity.
Is a PAN card mandatory for opening an NRE FD?
Yes, a PAN card is mandatory for opening an NRE fixed deposit.
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