NRI RD Account - Features, Types, Taxation & How To Open

An NRI recurring deposit account is a savings instrument for NRIs in which they deposit a fixed amount each month over a chosen tenure, ranging from 6 months to 10 years, subject to bank-specific policies. The funds deposited in the account earn interest, and the entire corpus generated over the tenure is paid to the investor upon the account's tenure ending.

NRIs looking to build a consistent savings habit in India should consider an NRI RD account, as it is a safe and secure option. Similar to regular NRI FDs, an NRI recurring deposit account lets you earn good interest over a specified tenure with minimal risk and assured returns.

In this blog, we will explore every aspect of NRI RD accounts, including benefits, types, opening an NRI recurring deposit account, account taxation, and more.

What Are NRI Recurring Deposits?

A recurring deposit for NRIs is a secure savings instrument where a non-resident indian will deposit a fixed sum of money every month for a specific time period. Over time, the deposit funds earn interest, and at the end of the term, the corpus built over the year is paid back to the account holders.

NRIs prefer recurring deposits as the process is simple to understand, it carries low risk, and it helps you build a consistent saving habit.

Types of RD Account For NRI

Now that we know what a recurring deposit for NRIs is. Let us understand the two types of NRI RD accounts.

NRO RD Account ( Non-Resident Ordinary Recurring Deposit ):

An NRO RD account is appropriate for NRIs with income sources in India, such as pensions, rent, or dividends. This account is an indian ruppe denominated account, and the interest you earn on this account is taxable. The interest rates of NRO RD accounts may vary from bank to bank.

NRE RD Account ( Non-Resident External Recurring Deposit ):

An NRE RD account is suitable for NRIs who earn in foreign currency but are likely to deposit the money in India to build a long-term corpus. Similar to an NRO RD account, an NRE RD account is also an Indian rupee-denominated account, and the interest earned on it is tax-free in India. Additionally, the funds are easily repatriable without restrictions.

In a nutshell, NRE RD accounts allow NRIs to securely park their foreign earnings in India, earn tax-free interest, and build a corpus over time, with no risk, attractive returns, and currency appreciation benefits.

Key Features Of NRI RD Accounts

The following are some of the key features of an NRI recurring deposit account:

Fixed Monthly Deposits: NRI investors must deposit a predetermined monthly amount into the account for the chosen tenure.

Interest: Both NRE and NRO RDs offer interest, and the rate varies from one financial institution or bank to another.

Fixed Returns: The returns are fixed in recurring deposit accounts, as the interest rate is predetermined when you open an RD account.

Taxation: The taxation obligations of NRI RD accounts are as follows: NRE RDs are exempt from tax in India, whereas NRO RDs are taxable, and the interest generated is liable to tax under the current Income Tax laws.

Repatrition: The NRE RD account allows full repatriation without restrictions, subject to FEMA guidelines, unlike an NRO RD account, which has limited repatriation.

NRI RD Account Interest Rate And Returns

How To Open An NRI RD Account

The following are the steps that NRIs must follow to open an NRI RD account:

• Step 1: Sign in to your bank's net banking or use the mobile banking account.
• Step 2: Select the "Open and e-RD account" option on your dashboard.
• Step 3: Next, enter the debit account number, the amount you prefer for the instalment, and select the investment period. Review the RD interest rates you will receive, and designate a nominee lastly.
• Step 4: Read the terms and conditions, confirm acceptance, and verify the estimated maturity amount.
• Step 5: Lastly, a confirmation message will appear, a receipt will be sent to the registered email address, and the specified amount will be debited every month.

NRI RD Account Taxation

The tax treatment of the NRI RD account differs significantly based on the type of NRI RD account you hold.

Taxation On NRE RD Account

• The interest earned in the NRE RD account is exempt from indian income tax.
• No tax is deducted at source.
• The funds in the NRE RD account are fully repatriable upon maturity.

Taxation On NRO RD Account

• The interest is taxable in India.
• TDS is deducted at the applicable rates.
• Post maturity repatriation is allowed, but only up to set regulatory limits.

Things To Keep In Mind Before Choosing An NRI RD Account

The following are key points NRI must keep in mind before selecting an NRI RD account for itself.

Repatriation and tax rules: Before choosing any one out of the two accounts, you must know the repatriation rules and the tax treatment of the account in and out. As NRE RDs are completely repatriable, whereas an NRO RD for NRI account has set repatriation limits.

Please ensure that the taxation and repatriation laws are subject to change in accordance with the directions issued by the Reserve Bank of India & The Foreign Exchange Management Act (FEMA).

Interest Rate Variations: The NRI RD interest rates depend on the financial interest rate or the account with which you have opened the account.

Exchange Rate Risk: RD account funds are held in INR; changes in currency values or exchange rates may affect the potential gains upon conversion back to foreign currency.

Financial Goal: When choosing an NRI RD account, consider your financial objective and select the account that best aligns with your needs.

Documentation: As an NRI, you must provide all required documents, such as your identity proof, visa, and overseas proof, to make the account opening process easier.

Benefits Of An NRI RD Account

As an NRI, investing in a recurring deposit account is a smart move. Why? Because there are no major risks involved, you earn a consistent interest rate and cultivate a savings habit that eventually builds a good corpus in India.

• Simple Investment Product: A recurring deposit is one of the simplest investment products an NRI can invest in. It is ideal for new NRI Investors and helps you develop good saving habits.
• Assured Returns: RDs are not volatile investment instruments like mutual funds or equity. It offers an assured return on the principal amount.
• Flexible Tenure: The RD tenure can range from 6 months to 10 years, depending on the investors' financial goals. You can choose a short, medium, or long-term tenure option.
• Premature Closure: A few banks or financial institutions allow premature withdrawals or account closures, though a small fee may be charged. This definitely provides liquidity in the event of a financial emergency.
• Loan Against RD: Many banks offer investment loans against their recurring deposits.

RD Account vs FD for NRIs: Which Is Better?

The following table compares whether a recurring deposit is better for NRIs or a fixed deposit.

The Bottom Line

For an NRI, an NRI RD account is one of the safest and most secure savings options if you are seeking assured returns with no market risk. An RD encourages the investor to deposit a fixed amount each month, which cultivates a disciplined habit.

Additionally, before making any decision, you must understand that NRO and NRE RDs are different from each other, especially in terms of taxation, repatriation, exchange rate, documentation, and exposure.

However, as an NRI, if you are seeking professional assistance to help you analyze the right RD account as per your financial plan, an expert-approved savings plan, and a better understanding of which bank offers the best RD interest rates for NRIs, then Savetaxs is the name to trust.

We have been managing the RD accounts of NRIs from 60+ countries, confidently investing in India without any non-compliance and building a generous corpus.

Our experts will help you choose the right NRI RD that best suits your financial plan, taxation, and repatriation preference. Connect with us as we serve our clients 24/7 across all time zones.