NRE Fixed deposits - 101

With the US$/INR exchange rate at an all-time high, and banks offering 9+% interest on NRE fixed-deposits – many people are considering NRE deposits. Here’s a quick introduction to help with your decision.

1.       Differences between NRO & NRE accounts/deposits

a.       NRO deposits are tax-deductible at source by the Indian government, whereas NRE deposits are tax-free in India (but are taxable in the country of your residence)

b.      Repatriating money from NRO accounts/deposits takes non-trivial paperwork & has a limit of $250k per year. Repatriating money from NRE accounts are easier.
c.       NRO accounts can be jointly owned by resident Indians, and can be used to depost income earned in rupees

d.       I believe NRE accounts need to be closed if you move back to India?

2.       Risks with NRE/NRO deposits

a.       Exchange rate could become unfavorable (i.e., if exchange rate increases after you transfer the funds, you could lose money). Historical change of the exchange rate is here ; the rupee has to depreciate 6+% each year (on an avg) to cause siginficant losses

b.      NRE/NRO deposits are only insured for Rs 1 Lakh (unlike FDIC that covers deposits upto $250K in the US). That said, banks in India are a lot more conversative unlike their foregin counterparts.

c.       Policy changes either by the Indian or the US government
d.       At the end of the day, compare the risks of a NRE FD with the other investment choices that you have.

3.       Current interest rates & terms on NRE deposits are listed here

a.       For the past 2 weeks, rates have been changing almost every day. Check out the latest news for any updates.

4.       To open a NRE FD, you need to have an NRE account with a bank offering NRI services

a.       (Ratings &) discussion comparing various NRI banks is here

b.      Popular public-sector banks include SBI (SBI Cal may be able to help you open an account)

c.       Popular private-sector banks include HDFC, ICICI

d.      IDBI seems to offer instant & online account opening

e.      Factors to consider when selecting a NRI bank – stability of the bank, interest rates, terms for premature withdrawal , ease of withdrawal, online features, customer service, etc

5.       To fund the NRE account/deposit, you need to transfer money via one of the remittance services

a.       Ratings of various remittance/transfer services are listed here

b.      Current exchange rates offered by various remittance/transfer services are listed here

c.       Many US banks can wire funds to your NRI account directly, but the exchanges rates are typically very bad
d.      SBI NY offers a remittance service with a pre-determined and good exchange rate (though it's a little inconvenient since they rely on faxes for all transactions/paperwork).


Check out some additional FAQs here