Comparison: FCNR Deposit vs NRO FD vs NRE FD

We recently published a comprehensive comparison of the various term deposit options available to NRIs, i.e. GIFT City FD, FCNR Deposit, NRO FD, and NRE FD. Here we’ll do a head to head comparison of the traditional INR deposits (NRO/NRE FDs) with the foreign currency deposits offered by Indian banks (FCNR Deposits).

FCNR Deposits

FCNR deposits are the term deposits tailored for NRIs to park their foreign earnings in their familiar currency without converting to Indian rupees. These deposits are offered by banks in India and are regulated by the Reserve Bank of India (RBI), ensuring security and trust in these foreign currency savings instruments.

Key features and benefits of FCNR Deposits

1. Duration: Deposit tenure typically ranges from 1 year to 5 years, as mandated by RBI.
2. Currency: Available in major global currencies like USD (US Dollars), GBP (British Pound), EUR (Euro), CAD (Canadian Dollar), SGD (Singapore Dollar), AED (UAE Dirham), etc. depending on the specific bank.
3. Repatriation: The deposit is fully (both principal and interest) and freely repatriable outside India, without any restrictions or permissions required.
4. Taxation: Interest from FCNR deposits is exempted from income tax in India as long as you are a non-resident (NRI and RNOR) under FEMA (Foreign Exchange Management Act). It is advisable to check for potential taxability in your foreign country of residence.
5. Premature withdrawal: Premature withdrawal is typically allowed, though no interest will be paid on withdrawal before 1 year. It is important to refer to the specific clauses of the respective banks to understand any other penalties, terms, and conditions applicable.
6. Interest rate: Interest rates vary depending on the bank, currency, tenure, and the amount of deposit. The interest rates offered are linked to corresponding lending rates and forex conversion rates in international markets. For USD, the current rate ranges from 3.30% to 6.00%.
7. Key benefits: Choice of favored currency to dial out currency fluctuation risk, option of availing loan against deposit, zero tax dues in India, and ease of repatriation.

NRO Fixed Deposits

NRO FDs are designed to help NRIs manage their income earned in India, such as rent, dividends, pensions, etc. These RBI regulated deposits are offered by most major banks in India. Repatriation of these deposits is regulated as per FEMA (Foreign Exchange Management Act) rules.

Key features and benefits of NRO Deposits

1. Duration: Deposit tenure typically ranges from 7 days to 10 years, depending on the offering bank.
2. Currency: Deposits are held in Indian Rupees, and interest is also paid in Indian Rupees.
3. Repatriation: Repatriation is subject to the limits set by FEMA (not more than USD 1 million for the financial year, including interest on all NRO funds)
4. Taxation: The interest earned is fully taxable in India as per your income slab. Banks will deduct TDS (Tax Deducted at Source) of 30% (plus surcharge & cess) on the NRO deposit interest. However, you can reduce the tax burden if there are any benefits available under the DTAA between India and your country of residence. Any excess TDS deduction can be reclaimed by filing an Income Tax Return in India for the corresponding financial year.
5. Premature withdrawal: Premature withdrawal is typically allowed. It is important to refer to the specific clauses of the respective banks to understand the penalties, terms, and conditions applicable.
6. Interest rate: Interest rates vary depending on the bank, tenure, and the amount of deposit. These are usually at par with domestic FD interest rates, and updated from time to time based on the relevant RBI rates. Typically ranges from 2.85% to 8.00%.
7. Key benefits: Convenient to grow Indian income at competitive interest rates, and option of availing loan against deposit.

NRE Fixed Deposits

NRE FDs are offered to NRIs to park their foreign earnings in India in Indian Rupees. These RBI-regulated deposits are offered by most major banks in India.

Key features and benefits of NRE Deposits

1. Duration: Deposit tenure typically ranges from 1 year (RBI mandated minimum tenure) to 10 years, depending on the offering bank.
2. Currency: Deposits are held in Indian Rupees, and interest is also paid in Indian Rupees.
3. Repatriation: The deposit is fully (both principal and interest) and freely repatriable outside India, without any restrictions or permissions required.
4. Taxation: Interest earned is tax-free in India. It is advisable to check for potential taxability in your foreign country of residence.
5. Premature withdrawal: Premature withdrawal is typically allowed, though no interest will be paid on withdrawal before 1 year. It is important to refer to the specific clauses of the respective banks to understand any other penalties, terms, and conditions applicable.
6. Interest rate: Interest rates vary depending on the bank, tenure, and the amount of deposit. These are usually at par with domestic FD interest rates, and updated from time to time based on the relevant RBI rates. Typically ranges from 3.00% to 8.00%.
7. Key benefits: Zero tax dues in India, ease of repatriation, option of availing loan against deposit, and competitive interest rates.

Conclusion

FCNR deposits help you grow your foreign earnings in foreign currency in India, while earning repatriable and tax-free interest. NRO deposits can help you grow your Indian income with flexible tenures. NRE deposits allow you to grow your foreign earnings in Indian Rupees and earn tax-free interest in India with full repatriation benefit. Each deposit option can accordingly be chosen to fit the relevant income source and your overall financial goals.