Fixed Deposit Schemes for Non Resident Indians (NRI) in India

A deposit that is made in a financial institution for a certain period after which the amount with interest rate can be withdrawn is called fixed deposit. The period is fixed and hence the name ‘fixed deposit’. This scheme is also called term deposit since the term or period is one of the major criteria that define the total interest earned in this scheme. However depending on the financial institution where money is deposited one can withdraw the total amount or part of the amount by paying penalties. Financial institutions of India provide fixed deposit schemes to Non Resident Indians under the regulations of reserve bank of India.

 

Fixed deposit schemes in India have few features in general. The other features will depend on the type of NRI account. Few basic features of FD scheme for NRI are mentioned below.

Types of account: By regulations of RBI, Foreign Currency Non Resident (FCNR), Non Resident External Rupee (NRE) and Non Resident Ordinary accounts can hold term deposit schemes.

Term: The fixed deposit schemes in India have a term that range from 7 days to about 10 years. There will be a minimum period called lockout period during which interest earned on deposit cannot be withdrawn. Generally for a 5 year NRI term deposit scheme, lockout period is 12 months in most of the banks in India.

Interest rate: Interest earned on deposit for NRI depends on the type of account. For NRE and FCNR account holders, interest rate is set based on LIBOR/SWAP rates. Basis points are added over these rates, 100 points for FCNR and 175 points for NRE over the existing LIBOR rate. Interest earned on NRO fixed deposit accounts is set by the financial institutions that provide the scheme.

Minimum sum: Minimum amount for term deposit will be fixed based on the bank that provides fixed deposit. This also depends on the type of account (NRE/FCNR/NRO). For ex: HSBC FCNR term deposit asks for a minimum of 750 Euros and HSBC NRE term deposit asks for a minimum of Rs. 25,000.

Joint Holding: Joint holding facility is also available on term deposits. Depending on the type of account (NRE/NRO/FCNR) the joint holder who can be included is regulated based on the resident status.

Premature withdrawal: By the rules of RBI, NRI who holds the term deposit can withdraw the deposited amount before the maturity period. Such withdrawals are subjected to penalties that are to be set by banks and the interest earned on the deposited amount can be changed accordingly by the bank. Related terms and conditions are to be mentioned by the bank when an NRI applies for term deposit.

Tax: Interest earned on NRI fixed deposit is subject to TDS and is exempt from other taxes under IT act.

Other factors: Regulations related to penalties on premature withdrawals and interest earned in the following scenario of an NRI FD scheme is governed under the guidelines of RBI.