How Repo Rate Changes Affect Your Fixed Deposit Returns

What is NRI Fixed Deposit?

If you are a Non-Resident Indian, then an NRI FD account will help you keep your foreign earnings in India at attractive interest rates.¹ These deposits offer you a significant return on savings when compared to standard savings in your account. If you wish to save your money and want to see it grow with time, then NRI FD rates can help you reach your desired goal. All you need to do is stay consistent and find a suitable financial institution to deposit your savings.

Types of NRI Accounts Offering FDs

Here are the various account types that NRI accounts can come in:

• NRE Account: In this account NRIs deposit their earnings from abroad. This money is converted into Indian rupees. This account is fully repatriable and offers tax free interest. For example, when Avantika is in France, she can start FD in her NRE Account where the Euros would be saved in INR. She opens FD in her NRE Account with her money.
• NRO Account: An NRO Account is used for money that an NRI has earned in India, such as rent income etc and is held in Indian rupee denomination. The interest accrued on the deposits are taxable and all outward remittances are also taxable. For example, Rahul who lives in USA, has put his house in India on rent, and the rent is deposited by the tenant into Rahul’s NRO Account. Rahul uses the amount to create a term deposit in his NRO Account.
• FCNR (B) Account: FCNR (Foreign Currency Non Resident) account allows NRIs to create a deposit in their own currency (applicable to RBI prescribed currencies such as USD or EUR, etc) in their resident country. You don't have to worry about changing currency!

In all the above accounts, you can open FDs with short-term, medium and long-term FDs. The impact of repo rate effect on FD for all accounts is important to follow as it is linked to inflation. The repo rate increase impact can be seen on the interest rates of all types of accounts.

Benefits of NRI Fixed Deposits

Below are the advantages of NRE Deposits:

• NRE Fixed Deposits allow NRIs to start saving their foreign earnings in Indian Rupees.
• One of the advantages is that in NRE and FCNR FD Accounts the interest earned is free from tax.
• Funds are fully transferable overseas, allowing NRIs to transfer money back home with ease.
• NRI FD accounts offer higher interest rates than regular savings options. The inflation rate in India and the repo rate can affect these rates.
• Tenures are flexible from 1 to 5 years. For an NRE FD the tenure ranges from 1 to 3 years, for NRO deposits, the tenure is the same as the resident account. The FCNR Deposits the tenure ranges from 1 to 5 year.¹
• Loans against NRE and FCNR Fixed Deposits are provided by AD Bank with no upper limit, allowed within India under certain conditions and regulations However, loans against NRO FD can be given within India to the account holder or third party under usual norms and limits¹
• The facility of joint accounts is available for two or more NRI/PIOs.¹

Factors Affecting NRI FD Rates

Here are the factors that influence the additional earnings (interest) on NRI safe deposits, which can move up or down:

• How long you keep your money: The longer the bank gets to keep the money, the more likely they are to pay additional interest.
• The amount of money you place: The bigger the placement, the better the rate you can sometimes get.²
• The type of NRI account: NRE and FCNR accounts normally give more in terms of extra earnings when compared to NRO.
• The monetary conditions in the country and the statements of the RBI (the Reserve Bank of India): Both situations help you understand the best time to make savings, including the repo rate and inflation.

Eligibility Criteria for NRI Fixed Deposits

You must be an NRI (who is Indian, living in another country) or a PIO (who has origin or ancestary in India, not from Pakistan or Bangladesh) to deposit money in an NRI Fixed Deposit. Citizens of Pakistan and Bangladesh require prior approval of RBI to be able to open NRI FD Accounts.¹ There can be additional restrictions when moving money out of the country beyond those for regular accounts, depending on the individual's place of residence.

Conclusion

NRI safe deposits are a way for Indians not residing in India to save money back home. You can have your foreign earnings in India, and they will be converted to rupees. Additionally, there is no tax on this money when it is deposited back in India. The surplus you earn (due to the repo rate's effect on FDs) can vary based on the duration of your savings and the RBI's stance on inflation and interest rates. If the repo rate increases, there is a chance that your extra earnings could increase as well. Therefore, make your financial decisions wisely, taking into account the factors discussed above.

FAQs

What is the interest rate for NRE fixed deposit?

The interest rate depends on how long you save and the rules of the bank.

What is the best interest rate for an NRI fixed deposit account in India?

There is nothing as best. The interest rate depends on how long you save and the rules of the bank.

What is the acceptable mode of payment for NRI FD?

You can start your FD using any foreign currency.

Can NRIs take a loan against FD?

Yes, certain banks allow you to take a loan against your fixed deposit (FD) account.

Is PAN mandatory for NRI fixed deposit?

Pan is mostly required to make an investment in India, so if you are opening a fixed deposit, it might be required.

Can an NRI get an Aadhaar card?

NRIs are not eligible for an Aadhaar card.

Can I have a nominee for my NRI fixed deposit?

Yes, you can choose someone to get the money.

How can I access my NRE Fixed Deposit when I am overseas?

You can easily access your FD account online using the bank's application or website.

References:

1. https://www.rbi.org.in/commonperson/english/scripts/FAQs.aspx?Id=3
2. https://www.airtel.in/blog/fixed-deposit/a-detailed-guide-to-nri-fixed-deposit-interest-rates/