NRE (Non-Resident External) accounts and NRO (Non-Resident Ordinary) accounts are two prominent investment options for Non-Resident Indians (NRI), Overseas Citizens of India (OCIs) and Persons of Indian Origin (PIO) to invest in India. While they can invest and withdraw in FRE and FRO accounts in Indian rupees, the basic difference is that choice depends where the fund to invest has come from.
Here's a look at how NRE and NRO accounts differ and the interest rates offered by major banks such as State bank of India (SBI), HDFC Bank, Punjab National Bank (PNB) and Axis Bank on their 5 to 10 years NRE and NRO fixed deposits (FDs).
Difference between NRE and NRO account
While in NRO accounts, NRIs can invest their earnings from Indian sources, in NRE accounts, they can park their earnings from international sources.
While interest on NRO accounts is subject to Tax Deducted at Source (TDS), interest earned from NRE accounts is tax-free.
While NRO funds can be repatriated up to USD $1 million per year after taxes, NRE account funds are fully repatriable.
While NRE FDs typically have a minimum tenure of one year and a maximum tenure of 10 years, NRO deposits have a minimum tenure of 7 days.
NRE vs NRO FD interest rates
Most banks offer the same interest rates on similar tenures of NRE and NRO FDs. Here are the interest rates offered by leading banks such as SBI, PNB, HDFC Bank and Axis Bank on their 5-10 year NRE and NRO FDs. These rates are for deposits below Rs 3 crore.
SBI offers an interest rate of 6.05% apiece on NRE and NRO fixed deposits with tenures of 5 years to 10 years.
PNB offers an interest rate of 6% each on NRE and NRO fixed deposits with tenures of 5 years to 10 years.
HDFC Bank offers an interest rate of 6.15% apiece on NRE and NRO fixed deposits with tenures of 5 years 1 day to 10 years.
Axis Bank offers an interest rate of 6.50% each on NRE and NRO fixed deposits with tenures of 5 years to 10 years for deposits below Rs 3 crore.
NRE vs NRO accounts: Key differences
| Feature | NRE (Non-Resident External) Account | NRO (Non-Resident Ordinary) Account |
| Purpose | Used to park income earned outside India in Indian rupees | Used to manage income earned in India, such as rent, pension, dividends or interest |
| Source of funds | Foreign earnings remitted from abroad | Income earned in India or funds transferred from abroad |
| Currency | Maintained in Indian Rupees (INR) | Maintained in Indian Rupees (INR) |
| Tax on interest | Interest earned is tax-free in India (subject to applicable conditions) | Interest earned is taxable in India and is subject to TDS |
| Repatriation | Both principal and interest are fully repatriable without any limit | Funds are repatriable up to USD 1 million per financial year, subject to payment of applicable taxes and RBI guidelines |
| Primary use | Ideal for maintaining overseas earnings and liquidity in India | Suitable for managing income generated from Indian sources |
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