Should you invest in NRE Fixed Deposits ?

With so many people leaving the country to work abroad or living in other countries for extended periods of time a common question lots of NRI’s are asking is how can they invest in fixed deposits in India?
There is no doubt about the fact that fixed deposits have been a favourite choice for investment in India for a long time and these days, with lakhs of people living and earning outside the country it NRI deposits have become increasingly popular.

What is an NRI Fixed Deposit?

An NRI fixed deposit is a term deposit opened by a non- resident Indian in one of the Indian banks. Many banks in India offer customized fixed deposit schemes for NRI customers who wish to deposit rupee and foreign currency in Indian banks.
NRI fixed deposits offer attractive rates of interest on your savings and help you grow your finance. Compared to normal savings deposits, NRI fixed deposits are high interest yielding financial products.
They pay you fixed rates of interest on your deposits until a specified maturity date. Banks in India offer fixed deposits for NRIs at competitive rates of interest for varying tenures.

Different NRI deposit accounts offered by Indian banks

A person living outside India can maintain different types of deposit accounts in India without taking permission from the Reserve Bank of India. A NRI can open such accounts with banks authorized to deal in foreign exchange in India.
An NRI fixed deposit account can be opened through three different types of accounts in India :

NRE account

NRE account can be opened by an NRI in the form of current, savings, recurring and fixed deposits (FD). For an NRE Account, an NRI needs to maintain a minimum maturity period of one year. NRE accounts can be opened only by the NRI himself/herself, not through any holder of the power of attorney. NRE accounts can be maintained in Indian rupee.

NRO account

Any Indian residing outside India may open an NRO (Non-Resident Ordinary) account with authorized banks for the purpose of carrying out genuine transactions in India. An NRO account can be maintained in the form of current, savings and recurring and term/deposit accounts.
Banks have the authority to determine the interest rates for NRO deposits. However, they cannot offer higher rates of interest on NRO deposits than the rates offered on domestic rupee deposits. Like an NRE account, NRO accounts can also be maintained in Indian rupee.

FCNR account

FCNR (Foreign Currency Non-Resident) bank account be opened by an NRI at authorized Indian banks. However, such accounts can be opened only in the form of term deposits for a period of 1 to 5 years. FCNR accounts can be maintained through foreign currency only.
In India, mostly all the banks offer uniform rates of interest on term/ fixed deposits offered under NRE, NRO an FCNR accounts.

Eligibility for NRI fixed deposits

The eligibility criteria for opening an NRI fixed deposit account include:

  • NRI fixed deposit can be opened either individually or jointly with other NRIs.
  • You are eligible to open an NRI FD account if you are a non-resident individual of Indian nationality, or of Indian origin.

Benefits of investing in NRI fixed deposits

  • Investing in NRI fixed deposits, you can earn greater rates of interest on your savings than a normal savings account.
  • Banks offer premature withdrawal of NRI fixed deposit with prior notification. However, your deposit will qualify for interest only if it is carried on for a stipulated period of time designated by your bank.
  • Certain NRI fixed deposits are non-taxable. For example, a fixed deposit account opened through an NRE account in India is not taxable.
  • NRI fixed deposits can be auto renewed on maturity as per instructions given by you.
  • Many banks offer loan against certain NRI fixed deposits. For example, you can get loan against your NRE fixed deposits opened with Axis Bank.
  • Certain NRI fixed deposits opened through FCNR and NRO account are eligible for tax concession.

Related : Understanding Types of NRI Bank Accounts

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