Indians working and residing outside India often face difficulties in repatriating their savings back home. For this purpose, they often rely on a non-resident external (NRE) account. This type of account helps non-resident Indians (NRIs) to transfer their funds to India and build a savings corpus in Indian Rupees (INR). However, there are two types of banking options that NRIs can choose from when it comes to NRE accounts. If you reside abroad and wish to build a savings fund back home, then you can choose from either an NRE savings account or a fixed deposit. Let’s dive into the basics and understand which of these two is more beneficial.
What is an NRE savings account?
Opening an NRE savings account is the first step for any NRI to start building their savings in India. So instead of frequently transferring money into a family member’s account (who resides in India), you can directly deposit your foreign currency earnings into an NRE savings account in your own name.
This essentially converts your foreign currency to Indian Rupees. You can then continue to make regular online transactions in India through this NRE savings account. One of the benefits of this type of account is that you no longer need to rely on a money exchange to transfer money back home to family members residing in India.
Most NRIs open NRE account online to maintain liquidity in their funds parked back home. An NRE savings account allows you to make regular transactions like paying for expenses back home, paying equated monthly instalments (EMIs) for property investments in India, or simply keeping money in a savings account to build up interest earnings.
What is an NRE FD?
An NRE FD or NRE fixed deposit, is a type of fixed deposit that you can open with your NRE savings account. It is arguably a much better way to save your foreign income in India if you are looking for higher interest earnings.
Just like any regular fixed deposit, the money you put into an NRE FD is deposited and locked for a particular period of time. During this time (known as the fixed deposit tenure), that money earns interest, usually compounded annually. This interest is not taxed by the Indian government, making it a great way for NRIs to build up a huge savings fund in India that they may use once they return to India for retirement.
Most NRIs open NRE account online to start such a fixed deposit. The best part of this type of FD is that you can repatriate the entire amount, including the interest earned, back to your foreign country of residence. There is no penalty charged.
NRE savings account and fixed deposit: The difference?
The main difference between an NRE fixed deposit and a savings account is that the latter has more liquidity than the former. However, a fixed deposit, despite having less liquidity, provides higher returns through interest earned.
So, if you are looking for higher interest earnings, then you would have to compromise on liquidity by choosing fixed deposits. Whereas, if you value liquidity more, then you would earn a slightly lower interest rate with a savings account.
Reputed banking institutions offer attractive interest rates on both NRE savings accounts as well as fixed deposits. This means, as an NRI, you would benefit from having either a savings account or a fixed deposit. Nevertheless, it cannot be denied that the interest benefit of fixed deposits is always higher.
Final thoughts
Both NRE savings accounts and NRE fixed deposits play important roles in an NRI’s financial strategy. The right choice depends on whether you prioritise flexibility or higher returns. By understanding how each option works and choosing a reliable banking partner NRIs can structure their finances efficiently and make the most of their overseas income while staying connected to India’s banking ecosystem.