All you need to know about NRE fixed deposits

Last updated on August 21, 2019

Moving abroad is a dream come true for many. Along with it comes a new home, a new job, new laws to live by, and new responsibilities. And in the midst of unfamiliar surroundings, managing your finances becomes essential. You may need to send funds to your extended family back home. No need to worry though. Thanks to online money transfer services like Axis RemitMoney, you can remit to India to your loved ones with ease. But how do you manage your investments?

As a non-resident Indian(NRI), youcannot use yourold savings account to park your foreign income.You can either open a new account or convert yourexisting account into an NRI account.In this case, opening an NRE account would be ideal.

What is an NRE account?

The term NRE stands for ‘Non-resident External’ account.This can bea savings, recurring deposit, or fixed deposit account. An NRE account allows you to deposit foreign currency in yourIndian bank account as well as remit to India. This rupee-denominated account can take care of your financial obligations back in India. That includesmedical expenses, loan repayments, children’s school fees, and so on.

With this account, you can also open an NRE fixed deposit. Listed below are a fewbenefits ofan NRE fixed deposit account:

1. Tax savings: An NRE fixed deposit account does not attract tax on the principal or on the interest earned from it. This makes it ideal for NRIs.
2. Repatriation option: You can move the funds held in your NRE fixed deposit across countries. Say,you decide to move back to India.You can convert the accountinto a regular fixed deposit account.
3. Flexible tenor:Like regular fixed deposit accounts, an NRE account offers a flexible termfor your investment. For instance, you choose a one-year term or stretch it to even 10 years.
4. Highinterest: An NRE fixed deposit offers good returns.The interest rates are typically in the range of 6–7%.However, like any other fixed deposit, the rate depends on the tenor.
5. Convenience: For NRIs living overseas, convenience is a priority. This is where the NRE account becomes very useful. It allows you to manage your account anywhere using internet banking. Also, you can make deposits in foreign denominations, which saves you both time and money.
6. Joint account holding:You can hold an NRE fixed deposit account with another NRI who is a close relative. For example, youcouldadd your wife and children if they are staying abroad.

While opening a fixed deposit account, many NRIs get confused between the NRE and NRO accounts. While both accounts are available to NRIs, there are some key differences between them:

• AnNRE fixed deposit is a tax-free instrument. However, an NRO fixed deposit attracts tax on the interest earned.The actual tax amount can come up to about 30%, which is higher than domestic fixed deposit tax rates.
• Unlike an NRE account, where you can deposit foreign earnings, an NRO account can only keep funds that have originated in India. Thisholds for fixed deposits as well.For instance, you cannot transfer funds from abroad with the purpose of opening an NRO fixed deposit. However, this is possible with your NRE account.
• With anNRO fixed deposit,only the interest earnedcan berepatriated, whereas an NRE fixed deposit offers full repatriation of funds. So, you caneasily transfer it to a foreign account.

Summing up

Once you become an NRI, you cannot manage your finances in India without opening an NRI account.And if you have a large sum just sitting around, use it to open anNRE fixed deposit.This will make your money grow and reduce your from tax concerns.