NRE vs FCNR: Difference and Comparison

An NRI can earn a double income – one in the form of foreign currency, which costs more in your country and the other from your investment in Indian Rupees.

Nowadays, people want to transfer the income earned from abroad to their country, and for this, there is a need to create a bank account to collect the money so that the money can come easily and stay safe.

The same transaction process requires a separate account which you can opt for.

Key Takeaways

  1. Non-Resident External (NRE) accounts to hold funds in Indian Rupees, while Foreign Currency Non-Resident (FCNR) accounts maintain deposits in foreign currencies.
  2. FCNR accounts protect non-resident Indians from currency fluctuations, whereas NRE accounts are exposed to exchange rate risks.
  3. NRE accounts allow the repatriation of principal and interest without restrictions, while FCNR accounts provide the repatriation of the principal and interest in foreign currency.

NRE vs FCNR

Non-Resident External (NRE) is an account opened by people who earn money from abroad. This account can be a current account, savings account, and many more. This account is used to save or deposit money earned from foreign countries. Foreign Currency Non-Resident (FCNR) is an account used by NRIs to deposit their money. It is not a savings account.

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NRE vs FCNR

In NRE, the account can be opened as a Fixed deposit account, savings bank deposit account, or current account. This account is used to deposit money that is tax-free and fully repatriable.

This account allows the transfer of income earned abroad to India. Due to which the INR balance of the Indian bank account is maintained. It can earn 3% per year.

In FCNR, accounts can be opened as a term deposit. NRIs open this account to park abroad in which the income earned in foreign currency is credited without converting it into Rupees.

The rate of interest in this type of account is approx. 1.5- 2.75%. Its minimum balance varies from bank to bank.

Comparison Table

Parameters of Comparison NREFCNR
Type of accounts    In NRE, the account can be opened as a Fixed deposit account, savings bank deposit account, or current account.In FCNR, accounts can be opened as term deposits. 
Purpose     This account is opened by Non-Resident Indians who have income earned from abroad and want to repatriate it to India.NRIs open this account to park abroad in which the income earned in foreign currency is credited without converting it into Rupees.
Minimum BalanceThe minimum balance should be up to 10,000 for saving accounts, and for fixed-term deposits, it should be 50,000. It varies from bank to bank. USD 1000, GBP 500, EUR 1000, JPY 11000, CAD 1000.  
Currency risk There is a risk to the currency because if the rupee depreciates, then there is a situation of loss at the time of maturity and repatriation.There is no risk in any currency as investment here as it is made in foreign currency and withdrawn in the same.
Rate of interest 7-9 % 1.5- 2.75 %

What is NRE?

NRE stands for Non-Resident External. Non-Resident External (NRE) account is for outsiders whose earnings are abroad, and it is an account for depositing and depositing their money.

It can be any account like a rupee-denominated account, savings account, current account, fixed deposit account, or recurring deposit account.

It can be opened individually or jointly in two ways. One more NRE can be included in the jointly opened account.

This account is only for money earned from any foreign country. Money earned in India cannot be deposited in it. In this way, one NRE can easily transfer funds to the account of another NRE.

Such an account is subject to exchange rate fluctuations.

The principal and interest amounts in this account are fully repatriable. It is completely tax exempted, hence it is tax-free. It also provides an investment facility.

Anyone who wants to invest in NRE India can do so easily with this account.

In NRE, the account can be opened as a Fixed deposit account, savings bank deposit account, or current account. This account is used to deposit money that is tax-free and fully repatriable.

This account allows the transfer of income earned abroad to India. Due to which the INR balance of the Indian bank account is maintained. It can earn 3% per year.

What is FCNR?

FCNR stands for Foreign Currency Non-Resident. Foreign Currency Non-Resident (FCNR) account is considered to be a type of fixed account that allows the money of Indians residing abroad to be deposited in 9 currencies.

They are 9 currencies – USD, GBP, AUD, SGD, CAD, CHF, HKD, EUR, and JPY. FCNR(B) account is not a savings account. It allows NRIs to deposit money as per their wish.

The amount deposited should be earned from abroad. NRIs can transfer funds to the FCNR account before opening the account.

The interest rate currency of the FCNR account varies according to its tenure. One of the features of this account is that it allows earning a fixed interest rate.

This interest rate does not change throughout the tenure. If there is any change in the account holder’s location during the deposit period, he can hold the account till maturity.

But during this change, the interest rate is fixed as per the rules of the bank.

NRI or any member of the family, jointly or individually, can open FCNR(B) account. The tenure of this account is up to 5 years. The amount deposited in this account is fully repatriable. In addition, it is tax-free.

Main Differences Between NRE and FCNR

  1. In NRE, the account can be opened as a Fixed deposit account and savings bank deposit account, and current account, whereas in FCNR, accounts can be opened as term deposits.
  2. An NRE account is opened by Non-Resident Indians who have income earned from abroad and want to repatriate it to India, whereas NRIs open an FCNR account to park abroad in which the income earned in foreign currency is credited without converting it into Rupees. 
  3. The minimum balance of NRE should be up to 10,000 for saving accounts, and for fixed-term deposits, it should be 50,000, while the minimum balance of FCNR varies from bank to bank. USD 1000, GBP 500, EUR 1000, JPY 11000, CAD 1000.  
  4. There is a risk to the currency in the NRE account because if the rupee depreciates, then there is a situation of loss at the time of maturity and repatriation, while there is no risk in any currency in the FCNR account as investment here as it is made in foreign currency and withdrawn in the same.
  5. The NRE account’s interest rate is 7 to 9%, while the FCNR account’s interest rate is 1.5 to 2.75%.
References
  1. https://taxguru.in/rbi/sensitivity-capital-flows-interest-rate-differentials-empirical-assessment-india.html
  2. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2119769
  3. https://shodhganga.inflibnet.ac.in/bitstream/10603/377/10/10_chapter%205pdf
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