Wednesday, March 2, 2016

NRE vs NRO vs FCNR - Which Savings or Fixed Deposit Account NRI should Open

Non Resident Indians, who wants to invest money in India, must first open a saving bank account. This will not only help you to easily remit money to India but also to transfer Indian rupees to your friends, relatives, and parents. You can also pay bills on behalf of parents, recharge mobile phones, pay DTH charges etc. If you have aged parents, then you can really help them to pay their bills online using your Indian Rupees NRE or NRO Saving accounts, I have open NRO accounts for just that purpose. Anyway, there are mainly three basic types of banks accounts for nonresident Indians, NRE, NRO, and FCNR. NRE stands for Non-resident external, NRO stands for Non Resident ordinary and FCNR stands for Foreign currency Non-resident account.

Each of this account has distinguished feature and they are for different need. I have covered some key differences between NRE and NRO saving accounts earlier, but given the confusion between these three, I decided to summarize features of these accounts together.

In this article, we will learn how to choose between NRI vs NRO vs FCNR accounts. TL;DR, basically it all depends upon your need, if you want to avoid exchange rate risk then FCNR is way to go, if you want to keep your savings on INR then go for NRE because interest earned are tax free, if you want to keep INR earned by dividend or rent then NRO is the right account to choose.

Non Resident External or NRE Account

Go for a non-resident external (NRE) rupee account if you are looking to remit overseas earnings to India and hold them in rupees, as also repatriate the proceeds of your investments back to your home country without any restrictions. An NRE account is completely tax-free and no tax is payable on the interest earned on the balance. This is also the best way to open NRE fixed deposit, because currently Indian banks are offering very good rates, close to 9% for a short tenure, and given you don't need to pay any tax, this is the real interest you earn.

Normally Resident Indian accounts attract tax @ 20%, so returns from the Fixed deposit is not actually as advertised, but with NRE account, you get what you see. If you want to keep your savings in Indian Rupees then this is the best investment option, without any risk. Of course, if you thinking to transfer money back to your overseas account then there is a currency risk involved if exchange rates are not in your favor.

Also, NRE account has some limitation e.g. you cannot put income from rent, salary and dividends in the NRE account, in fact, you can't deposit Indian rupees on your NRE account. You can only fund your NRE saving account by remitting money to your Indian bank. Once you got Indian rupees on NRE saving the account, you can freely transfer that money to your relatives, parents and friends. You can even pay bills, recharge mobile and DTH using that money.

NRE saving accounts from ICICI, HDFC, and Kotak Mahindra allows you to transfer Indian rupees to any other NRO or Resident saving the account. You can use money from this account to open NRE fixed deposit or even an FCNR fixed deposit, but that will attract two-way exchange conversion charges, so it's not advisable to use money from NRE account to open FCNR account though banks like HDFC banks permits this.

Non Resident Ordinary or NRO account

Since you cannot put income from rent, salary and dividends in the NRE account, it doesn't serve all banking needs of a Non Resident Indian, to full fill this needs you need to open a non-resident ordinary (NRO) account. NRO accounts have a couple of advantages and disadvantages over NRE account. One of the important benefits of NRO saving account is that NRO accounts can be jointly opened with a resident Indian i.e. either with your parents or with your wife or children.
Which account to open NRE, NRO or FCNR

Some banks offers linked debit card for both account holders, which means your parents can also have a debit card linked to this NRO account. I like this option because a debit card is a must for booking online tickets, making hotel reservations and doing online shopping. Since some airlines like Indigo ask you to book tickets from your own debit or credit card, it's good if your parent has a debit card with their name printed on that. This will allow them to avail air travels on Indigo, one of the cheapest, but best-connected airlines in India.

But all is not good with NRO accounts, it also got some serious disadvantages, most important are, the interest earned on the NRO account is taxed at the marginal rate of 30% plus surcharge and cess. The balance in the account is also subject to wealth tax. So it's not good for keeping a lot of cash or using the money to do an NRO fixed deposit. In fact, as per my experience, every NRI, at least, needs an NRE and an NRO account, not just as a choice but as need.It's better to utilize money for expenditure and save money from NRE accounts.

Foreign Currency Non Resident or FCNR Account

Now there is one more type of account, known as FCNR accounts, which any non-resident Indian can open with Indian bank. If you do not wish to be exposed to exchange rate risk, you can instead open a foreign currency non-resident (FCNR) account with a local bank  e.g. ICICI, Axis, HDFC or SBI, where your funds are held in the foreign currency, and not converted to rupees.

Difference between NRI, NRO and FCNR accounts

I suggest to directly remit money required to open an FCNR account instead of first sending money to NRE account and then using that money for opening FCNR fixed deposit, because that will attract two-way exchange rates and commission, first your USD dollars are converted to INR rupees to deposit on NRE account, then those rupees will be converted back to USD dollars for FCNR fixed deposit.

The right way to open FCNR deposits are remit money only for that purpose after consultation with the relationship manager of your local bank e.g. HDFC Bank, Kotak Mahindra bank provides good service on that. Few months back, when the rupee was tumbled to record low against US dollars and other major currencies e.g. GBP, EURO, JPY and AUD, Indian banks were offering very competitive rates on FCNR deposit, may be in the attempt of RBI to hold Rupee.

Seems that move paid off and lots of NRI has opened FCNR deposit accounts that period. Now with USD around 61 rupees, and USD FCNR rates around 4 to 5% for 3 year period, it's still attractive, only if you want to keep your money on dollars. By the way, not all banks provide FCNR deposit account on the currency of your choice, e.g. there is only one or two bank which allows you to open FCNR account on Singapore Dollar, SGD. Thankfully, almost all banks allow you to create FCNR deposits on USD though.

Here is the summary of differences between NRE, NRO, and FCNR saving accounts in tabular format:

Difference between NRE, NRO, and FCNR Saving Accounts

Once, you made your mind open either NRE, NRO or FCNR accounts, it's time to start the process of opening these accounts. In my opinion, you need both NRO and NRO for different purposes, once you open a saving account with the net-banking facility, you can easily open NRE fixed deposit or FCNR deposit by your own.

In order to open an NRE or NRO saving the account, you can either visit the nearest branch of the Indian bank in your home country, if any or send the completed application form (you can get it online) along with the documents to any of the branches in India. Some of these banks provide you callback option, so just contact then and they will send you whole procedure by email or can explain you by phone. Major banks like HDFC, ICICI, Axis banks have their post box setup, you can drop your filled application with all documents their as well.


  1. Excellent information and very useful.

    Many Thanks for it

  2. Hi - can money in NRO account be used abroad for paying bills or small purchases etc. directly ( i.e a card swipe) OR even that requires a CA certificate/documentation submission etc. ?

  3. which is better account to use for spending in india like buying gifts or transferring payments in india for purpose like properties or maintainance? Seems i can use both NRE or NRO for this?

    1. I think, NRE would be good option, as you might earn tax free interest on your money, in case you didn't spent all in gifts. If you are planning to just use your account as IN and OUT money for loan purpose and not keeping any money then NRO would be good option as you won't earn any interest.

  4. Thanks for the info. So if i were to set up an account for delivering money to my mother in India, the best choice is NRE?

  5. Whenever my FCNzr deposit is matures , will i get money in dollars or rupees in india . I mean the banks have buy & sell rates for currency... so will my money be double converted st tht time...

    1. @Unknown, you will get money in dollars, FCNR deposit is held in foreign currency. Though, if you want, you can convert it to INR after that. usual exchange rate will apply.