The 3 Different Types of NRI Accounts

A Non-Resident Indian (NRI) is an individual who lives abroad and may want to send their earnings back to their families or make investments in India.

An NRI bank account can be opened by a Non-Resident Indian, an Overseas Citizen of India, or a Person of Indian Origin. 

These bank accounts are authorized by the Reserve Bank of India, which provides banking services to people of Indian descent living and working abroad.

A Non-Resident Indian is categorized as anyone who has lived outside India for at least 120 days in a year and has spent less than 365 days in India in the past four years.

If you fit this criterion, you are automatically granted NRI status and can open an NRI bank account.

Depending on their personal and financial circumstances, Non-Resident Indians can choose between the following bank accounts to open in India:

1. NRE Account
2. NRO Account
3. FCNR-B Account

Non-Resident External (NRE) Account

Who is this for?

An NRE account is perfect for someone who wants to earn interest on their foreign income and send back funds to India either to their families or for investment purposes. 

It is ideal for those who want to store their income in Indian Rupees while being exempt from tax liabilities.

What is its purpose?

An NRE account allows Non-Resident Indians to send money back to India to make investments, send money to their families or manage their properties back home.

It allows you to store your foreign income in the Indian Rupee denomination.

They can be opened as a savings account, current account, recurring, or fixed deposit account

How does it work?

Only funds originating from a foreign country can be deposited into an NRE account.

While depositing funds enjoy this flexibility, you can only withdraw funds in Indian Rupees from an NRE account.

What are its benefits?

The main advantage of setting up an NRE account is the smooth remittance of funds from your country of residence back to your family in India.

NRE accounts allow you to conveniently repatriate funds, including any interest earned on them back to India.

An NRE account is also high in liquidity as it allows full repatriation of funds from the account to the NRI’s country of residence when required. 

Moreover, you can easily transfer funds from any other NRE or Foreign Currency Non-Resident (FNCR) bank account.

Lastly, NRE accounts are exempt from tax. 

This is a major feature that distinguishes NRE accounts from other NRI accounts, as this exemption applies to both the funds in the account and the interest earned on these accounts. 

Is there a downside?

Due to fluctuating exchange rates, an NRE account can be subject to conversion loss.

This can include the fluctuation in the daily value of the rupee as well as general conversion loss.

This may be a factor to consider compared to other NRI accounts that are not affected by fluctuating exchange rates. 

Moreover, You can only open NRE joint accounts with another Non-Resident India instead of an Indian citizen, which might be a disadvantage if you want to open a joint account with family back home in India.

Non-Resident Ordinary (NRO) Account

Who is it for?

An NRO account is a great option for those Non-Resident Indians who have sources of income abroad and within India through rent, dividends, pension, or interest.

They allow you to deposit your foreign income and withdraw only in the Indian Rupee denomination.

What is its purpose?

A Non-Resident Ordinary account is a type of bank account for NRIs to manage their income both earned abroad and earned in India.

There is no limit to the source of the income as long as it is earned in India.

How does it work?

Through an NRO account, you can deposit income earned originating from inside and outside India.

However, you can only withdraw from an NRO account in the Indian Rupee denomination.

This is a common feature found in both NRO and NRE bank accounts.

What are its benefits?

The most attractive feature of an NRO account is that you can deposit income earned outside and inside India.

Another feature that benefits NRIs is that they are less likely to impact exchange rate fluctuations. 

Suppose the deposit and withdrawal are made in Indian rupees.

In that case, there is no exchange rate applied, resulting in no conversion loss. 

Lastly, a Non-Resident Indian can open a joint NRO account with either one or more NRIs or Indian citizens. 

Therefore, opening an NRO account may be a more attractive option for those who want to open a joint account with family members back home.

Is there a downside?

All interest earned on an NRO account is taxable compared to NRE accounts which are also repatriable but tax-free. 

However, according to the Double Taxation Avoidance Agreement, which applies to many other countries, including India, NRIs may be able to reduce their tax liability.

Foreign Currency Non-Resident (FCRN) Account

Who is it for?

A Foreign Currency Non-Resident account is ideal for those who want to deposit their income in a foreign country without restricting their deposits to only Indian Rupees. 

Opening such an account will also be in your favor if you decide whether to invest or save your earnings in India or overseas. 

Lastly, it is a good option for Non-Resident Indians who live in countries where interest rates are comparatively low. 

What is its purpose?

A Foreign Currency Non-Resident (FCRN) account allows Non-Resident Indians to make deposits in foreign currencies. 

You can deposit the currency of the country they are living in working in.

However, you must deposit in one of the currencies recommended by the Reserve Bank of India. 

You can also easily transfer funds directly from your foreign bank account through a wire transfer or an existing NRE account.

How does it work?

FCNR accounts are fixed-term deposit accounts with a minimum tenure of one year and a maximum of five years. 

This allows you to hold funds for an agreed period of time while earning interest.

However, if you make any premature withdrawals before the agreed fixed term, you will not receive any interest.

What are its benefits?

Foreign Currency Non-Resident Indian bank accounts are fully repairable, and their interest is tax-free. 

Having an FCNR account also makes you eligible for loans in Indian Rupees.

Such loans can be up to 85% of your deposit at a suitable interest rate. 

You can also benefit from an overdraft facility over your FCNR term deposit account, which can help manage your finances.

You can obtain these loans from anywhere in the world against your FCNR deposit. 

However, some banks may have varying repayment conditions, which you should always consider before making any decisions. 

Lastly, through an FCNR account, you avoid the risk of conversion loss and exchange rate fluctuations which allow you to benefit from earning higher, risk-free returns. 

Is there a downside?

There are limited restrictions and risks involved with opening an FCNR account as you avoid losing out from exchange rate fluctuations by depositing funds in the foreign currency of your choice.

Final Words

As a Non-Resident Indian, choosing the right NRI account to open is a decision that you must carefully make. 

Choosing the wrong NRI account without conducting prior research can be extremely inconvenient. 

Therefore, you should carefully assess the benefits and restrictions associated with all account types and match them against your financial needs.

But you should also know, that you're not only stuck using Indian bank accounts as a Non-Resident Indian.

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