According to the latest report specified by The Economic Times, term deposits made by non-resident Indian stood at $130.5 billion by August 2019. Out of this, there was an evident $4 billion worth deposit for NRE accounts between April and August which was $5.7 billion for the same period in the previous year. This drop in term deposits for NRE accounts indicates a preference of NRO accounts in recent times.
What is NRE term deposit?
NRE term deposit is a saving scheme which allows non-resident Indians to deposit their overseas earning into an Indian account. The foreign currency is converted into rupees and hence can be withdrawn at the end of term deposit tenor. Individuals earning money overseas utilise this term deposit and convert their foreign currency into Indian rupee through their NRI account.
In addition to NRE term deposits, there are several other term deposit schemes where an NRI can invest.
Following are a few options of term deposit accounts that an NRI can choose from –
- NRO fixed deposit
Any non-resident Indian who has a source of income in India has to have an NRO account to save their funds. This type of fixed deposit scheme is used by NRIs who earn funds regularly from sources in India. Individuals can make use of the high rate of interest offered to NRI account holders and invest in such advantageous schemes.
2.FCNR fixed deposit
Foreign Currency Non-Repatriable (FCNR) deposit is a kind of savings scheme where candidates are allowed to save their earnings even in foreign currencies that is acceptable throughout the world.
3.RFC fixed deposit
RFC fixed deposits, being repatriable, are saving schemes opted by individuals who are planning to move back to India soon. Those shifting back can avail any interest earned in this fixed deposit scheme.
The interest rate offered for NRE accounts can be comparatively lower than NRO accounts. Hence, investing in NRO accounts can be a beneficial alternative for NRIs.
Rate of interest offered for NRO deposits
NRO term deposits can offer a higher rate of interest for the benefit of individuals in saving funds. Non-banking financial companies like Bajaj Finance offer a lucrative rate of interest on NRO term deposits.
Bajaj Finance interest rate on FD can go up to 8.10% for non-resident Indians. Senior citizens can avail up to 8.35% rate of interest on their term deposits. Therefore, an NRO term deposit becomes one of the top investment schemes for senior citizens that ensure financial stability.
Furthermore, the rate of interest offered by financial institutions in 2020 for NRI schemes depends upon the following factors –
- Type of fixed deposit (cumulative or non-cumulative)
Cumulative fixed deposits offered by financial institutions are the preferable options by individuals as this offer a high rate of interest. Monthly, quarterly, half-yearly, and yearly compounded non-cumulative fixed deposit offer comparatively low rate of interest.
- Tenor of deposit
There are 3 ways on how FD tenor affects its interest rate, as listed below
- Financial institutions offer a higher rate of interest for long tenor fixed deposits made by NRIs.
- By investing in long-term deposits, NRIs can save themselves from the fluctuating rate of interest.
- Reinvesting the interest earned by the saving schemes increases when the tenor is longer as you earn interest on the amount which is inclusive of interest for that period.
- Category of NRI individual (senior citizen or not)
Depending on the category an individual belongs to, interest rates are offered for them. Senior citizens have an added advantage as they are offered a 0.25% added rate of interest. Bajaj Finance interest rate on FD for senior citizens is 8.35%. This can be advantageous for NRI individuals attaining the age of 60.
Therefore, NRE term deposits can be useful for scenarios when non-resident Indians need to save their earnings from overseas. However, the earnings in different foreign currency are turned into rupees for deposit.
Individuals can make use of the offered rate of interest for term deposits and make a wise investment option for their NRI account. Offered rate of interest is comparatively high than a general savings account, and assured savings makes it an interesting investment option for non-resident Indians.
Gaurav Khanna is an experienced financial advisor, digital marketer, and writer who is well known for his ability to predict market trends. Check out his blog at HighlightStory
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