Investing is the best method to let your money work on its own. Hence, most people focus on making lucrative investment choices once they start earning. A Fixed Deposit is a popular choice for Indians due to its safety and guaranteed returns. Hence, every Indian household has some association with the investment tool. This obsession does not die after moving overseas. Therefore, Indian banks offer Term Deposits for Non-Resident Indians.

They are known as NRI Fixed Deposits. The general classification involves Non-Resident Ordinary (NRO) and Non-Resident External (NRE). Both offer risk-free and higher returns than Savings Account. Also, they come with numerous benefits for wealth growth. But they have differential characteristics. Understanding the same helps in utilising them optimally. Here are some factors to shed light on the differences between NRE and NRO Fixed Deposit:

Sources of funds

The fundamental difference lies in the method of investment. The main advantage of an NRE Fixed Deposit is it allows you to invest income generated outside India. This amount gets converted into Indian currency for easy maintenance. Upon repatriation, it gets converted back to the original currency. On the other hand, An NRO Deposit accepts investments for income earned in India. These include sources like rent, commission, dividends, pensions, etc.

Interest rate

The main intention of any investment is to get lucrative returns. This depends on the interest rate offered. With NRI Deposits, you get to make decent earnings based on the benchmark set by the Reserve Bank of India. In comparison, NRE FDs offer higher interest when you open NRO Fixed Deposit Account. This varies across banks and is slightly higher for senior citizens.

Transferability

The biggest consideration is the ability to utilise your gains without any hassle. This depends on the repatriation flexibility in the case of NRI Term Deposits. When it comes to NRE Deposits, both the principal and interest income are freely transferable. But in the case of the NRO Account, only the interest earned is repatriable.

Also, you only get to transfer it up to a specific limit in a financial year. Check this aspect with the bank when you open NRO FD Account.

Tax deduction

Tax is a significant factor that affects your returns. Hence, learn about the taxation norms before investing. The NRI Deposits have a relaxed tax deduction policy. This resonates with NRE Deposits, where the principal amount and the interest earned are entirely tax-free. However, the interest on NRO funds is taxable at 30% under the Income Tax Act. Plan your investments accordingly while opening an NRO Fixed Deposit online.

These are some of the distinctive characteristics of both NRI Deposits. Learning about them helps you make suitable investment plans.