5 Things You Must Know About NRO Fixed Deposits

One of the best ways in which you can make your money work for you, while keeping your investment secure, is to create a fixed deposit. This conventional type of investment allows you to earn an interest rate higher than what you would earn if your savings were parked in a regular savings account. FDs can be opened by both, Resident Indians as well as Non Resident Indians or NRIs. NRIs can open create three types of fixed deposits – Non Resident External Rupee deposit, Non Resident Ordinary Rupee deposit and Foreign Currency Non Repatriable deposits. This article is about NRO FDs.

1. What is NRO account and FD?

An NRO account is ideal for NRIs who have moved abroad but still have dependants or income sources in India. You can continue to manage your finances in India through your NRO account and, when you have deposited enough sums in this account, you can open an NRO FD. As such, the sums you earn form your investments in India – be it through share market investments, rent earned from properties leased or inheritance can be invested by creating an FD. This allows you to earn a higher amount on your existing investments.

2. You may repatriate the interest earned on deposits

Whether you maintain the sums in your NRO account or create an FD out of it, there are certain rules you must adhere to, with regards to repatriation. In case of NRO FD account, you may repatriate only the interest earned on your deposits (while you are abroad) and transfer the interest amount to your offshore account. The principal amount may not be repatriated to your foreign account.

3. The interest rate you can earn

When it comes to this type of NRI fixed deposit, the interest you earn on your deposit is typically the same as that offered to resident Indians. This is because the NRO account is essentially an INR account, from which you can repatriate sums i.e. the principal amount deposited, only when you are in India.

4. The interest you earn is taxable

The interest you earn on your NRO fixed deposits is taxable in accordance with the Income Tax Act of India, 1961. This is because the sums parked in the NRO account are sums earned from your investments in India. As such, you need to comply with the taxation laws of India. The tax levied on this FD for NRIs is quite high too. You need to pay 30% interest along with the applicable surcharges and cess taxes. If the interest earned in a financial year exceeds ₹1,000,000; you need to pay an additional surcharge of 10%.

5. Investment term and premature withdrawal

Both NRO and NRE FDs can be opened for a minimum period of 7 days and a maximum period of 10 years. You may also withdraw the deposits prematurely, before the term ends. However, the terms of premature withdrawal may differ from one bank to another. While some banks charge a penalty of 1% on the interest earned for premature withdrawals, other banks may not levy any penalties if you’ve maintained your FD for a minimum period of 1 year.

Final word: One of the greatest drawbacks of the NRO deposit is that you cannot repatriate the principal amount to your foreign account. The interest levied is also quite high. As such, it is better to consider the other NRI FDs. The FCNR Deposit is the best type of NRI deposit as you do not have to worry about currency fluctuations.

Do You Know These 4 Facts About FCNR Deposits?

In order to create a corpus, one needs a good amount of savings and investments. You can put away your money in bank fixed and recurring deposits or even invest in the share market. The idea is to plan your investments in such a way that you can accrue high returns and also liquefy the investment if and when needed. If you are a conservative investor, preferring to park your savings securely, a fixed deposit is the best way to go. NRIs, too, can make FDs out of their foreign currency earnings. Yes, you can open a Foreign Currency Non-Repatriable deposit or FCNR deposit. But do you know these 4 essential facts about this foreign currency deposit? Here’s all you need to know

1. FCNR is not exactly an account, but a fixed deposit

Most NRIs generally assume that FCNR is an account, but the fact is that it is a deposit. As an NRI, you can open a Non Resident External Rupee of NRE account and/or an NON Resident Ordinary Rupee or NRO account. You can deposit foreign currencies in the former account and Indian Rupees in the later. Once you have a good amount of savings in the NRE account, you can make a fixed deposit from it. These FDs could be termed as NRE fixed deposits, a term used interchangeably with foreign currency deposits.

2. You can maintain deposits in different major currencies

Most banks allow you to maintain your fixed deposit in different, major international currencies. Generally, the currencies in which you can maintain your FCNR deposits include Great Britain Pound Sterling, Euros, Japanese Yen, Swiss Francs, Danish Krone and Swedish Krona. You can also maintain the FD in different types of dollars which include American, Australian, New Zealand, Canadian and Singaporean Dollars.

3. You should know the minimum and maximum tenure and the penalties for premature withdrawals

Fixed Deposit for NRI can be opened for a minimum duration of 1 year, whereas the maximum FD tenure is generally 5 years. A handful of banks may also offer 10 year tenures for foreign currency fixed deposits. The greatest advantage of these deposits is that they are risk averse and you do not have to worry about currency fluctuations. Also, the interest you earn on these FDs is in the foreign currency in which the FD is maintained. You may also prematurely withdraw your FD before your chosen tenure ends, but you have to bear a penalty for premature withdrawals. If you decide to break your fixed deposit, before the minimum 1 year tenure, you may not be eligible to earn any interest pay out on your deposit.

4. You can open the deposit online

As an NRI, it may not be possible for you to visit your bank in India and create a fixed deposit account. This is why all banks offering NRI services, allow you to make your NRI fixed deposit online. That said the main source account for the foreign currency fixed deposit should be a foreign currency account opened overseas or an NRE account in India. You can easily create the FD by transferring funds from either of the bank account through wire transfers. You may also create this FD while you are in India by depositing a travellers’ cheque or make foreign currency cash deposits.
As is apparent from the term FCNR, this is a non-repatriable deposit. That said, you can completely repatriate the principal amount of the fixed deposit and the interest earned on it, when your FD matures. You also earn interest on a half-yearly basis on these deposits.