RBI liberalized the NRE interest rates last month, and allowed banks to set their own interest rates like they did for the savings bank account interest rates.
Prior to this, it made no sense to open a NRE account for the interest rate because you got a lot higher rate in the NRO account even after tax deduction.
But with this change, now you can get extremely high rates of interest in the NRE account and the interest in this account is tax free as well!
The recent rupee fall contributed to this move, and these are very good rates for NRIs who live in western countries with low interest rates and don’t have a lot of safe options to put their money at work.
I’ve made a list of the banks with the best NRE interest rates that I could spot along with the tenure, and if you see any banks missing from this list then please let me know and I’ll update this list.
Here are a couple of other posts that are related and might be useful as well – the first one explains the difference between a NRO and a NRE account and the second one talks about how you can open a NRE or NRO account while you are abroad.
Now here is the list.
| S.No. | Bank | Tenure |
Interest Rate |
| 1 | Karur Vysya Bank | 1 year to 2 years |
10.00% |
| 2 | City Union Bank | 1 year and less than 3 years |
10.00% |
| 3 | Tamil Nadu Mercantile Bank | 1 year – less than 2 years |
10.00% |
| 4 | Karnataka Bank | 1 year to less than 2 years |
9.75% |
| 5 | Dena Bank | 1 year only |
9.60% |
| 6 | State Bank of Travancore | 1 year to less than 2 years |
9.50% |
| 7 | South Indian Bank | 1 year to 2 years |
9.50% |
| 8 | Corporation Bank | 1 year to less than 2 years |
9.50% |
| 9 | IDBI Bank | 1 year 1 day – 10 years |
9.50% |
| 10 | J&K Bank | 2 years to less than 5 years |
9.50% |
| 11 | Federal Bank | 1 year only |
9.50% |
| 12 | Indian Bank | 1 year to less than 3 years |
9.50% |
| 13 | Andhra Bank | 1 year |
9.40% |
| 14 | Central Bank of India | 1 year to less than 2 years |
9.25% |
| 15 | Vijaya Bank | 1 year to less than 2 years |
9.25% |
| 16 | Bank of Baroda | 1 year to less than 2 years |
9.25% |
| 17 | ICICI Bank | 390 / 590 / 990 days |
9.25% |
| 18 | HDFC Bank | 1 year 16 days |
9.25% |
| 19 | SBI |
1 year – 10 years |
9.25% |
is these rates are still appplicable ?
LAKSHMI VILAS BANK – INTEREST RATES
NON RESIDENT TERM DEPOSITS :
a. NRO – with effect from 06.10.2012
1 year to below 2 years 9.25%
Above 2 years 9.00%
b.NRE – with effect from 06.10.2012
1 year to below 2 years 9.25%
Above 2 years 9.00%
.Non-Resident accounts
a.NRO 1 year to below 2 years 9.80%
b.NRE(All Maturities) with effect from 16.07.2012
1 year to below 2 years 9.80%
2 years to below 3 years 9.75%
3 years & above 7.00%
Time to update….cause banks have reduced rates
The problem with State Bank of Travancore is that their International debit card doesn’t work in the USA.
@Li: This must be the universal prob for the card. you should contact banks customer care and raise a complaint.This prob will be handled by their technical team.
All banks offer 4% rate of interest only. One way that you can do is you open NRE account with some bank take the internet banking facility and you can make online fix deposit from your NRE account to get higher rate on your balance. Now you can transfer online funds from abroad to the NRE account in india and enjoy technology banking.
I would advise to open the account in Karur Vysya Bank. Their service is excellent and their rate of interest also heighest.
Very usefull piece of information indeed….
Hey Mayank… all bank offers same rate.. 9-10% what they are talking here is long time investment for 1 or so.. cheers
Hi all…
i need to open an NRE savings account.What i have found online is that most banks offer 4% interest in NRE Savings Account. Can anyone suggest any bank which offers more than this.
Thanx..
this is really good to have such a useful site.
Thanks for the updated list. It sure is of immense help to all the NRIs. As to where one should invest his own money, it is his own decision; however, comparisons like this will definitely help such people to arrive at a correct decison and/or to check further other alternatives.
NRE deposits are surely the least bothersome of all investments; all others have their pros/cons and if one is not vigilant, he will definitely burn his fingers. Otions like real estate, mutual funds, stock market were perfenct until a couple of years ago, but none of them is interesting anymore as most of them had only given negative returns.
Having said this, I do not know whether the sudden decision of the Government to free NRE deposit rates has something to do with the Direct Tax Code which is expected to be implemented in the very near future!!
It’s more to do with the recent rupee depreciation than the DTC. It doesn’t look like the DTC will be implemented in the coming fiscal.
Thanks. May be you could think of analyzing and writing an article on the subject at a later date if you think proper. if you decidE please keep in mind following points.
A. Various means available both for outward rEmittance and inward repatriaion with details.
B. tax implications in india and abroad especially USA
C. Grading all the means of Transfer each way in terms of
Cost / Time taken / Convenience / Safety separately and also one having reasonable safety, reasonable time taken at a reasonable
cost!
thanks. your research is very valuable to many. god bless you.
C.
a) Each bank in India has a service tie-up to send funds to India. Rates offered are really good. Today the quoted market price on bloomberg is 54.50, the website’s indicative rate is 53.45. This is excellent rate when you compare to what it would cost if you went through a local (US bank) wire transfer. The cost to send funds to this service from your local US bank is $0.
b) NRE Interest earned is tax free in India. That is:
i) No taxes on interest Income in India.
ii) Interest income earned to be declared in US on your personal Income tax return. This will be reported as interest income on line 2 or 3 of your Federal 1040.
c) Return of funds is something I don’t know yet, however, since the funds are fully repatriable, I don’t expect there to be any troubles. I have not repatriated funds back to US ever, so can’t give you a true picture. However, for me this risk was something I can live with, and therefore went ahead and invested in a FD.
In short, the 9% return I am getting, even after taxes in US and fees to send to India as well as get it back to US, I beleive I will still get a hefty 5% return (before any FX impact). Now if I can ride it long enough to hold it till the fx turns in our favor, there could be a higher return, if fx depreciates, then thats unfortunate.
My biggest rationale is: I know I will be visiting India in the future. The funds can be withdrawn and spent there. I can always enjoy the funds in India for touring, shopping etc.
Thanks Manshu. Exchange risk is unpredictable, that is true. but could you quantify exact cost of repatriation and remittance both ways, keeping the exchange rate constant. it is just to understand possible earnings out of total interest earnings. I was under the impression it might be as high as 1 to 3% each way? because it is not only interest but principal which is being transferred each time.
No, it won’t be that high – at least for sending money from US to India. When you transfer money from US to India – the service tells you an exchange rate that you can expect and an additional service tax. The tax is quite less – something like Rs. 200 for a transfer of $6225. I’ll see if I can get the rule on that somewhere.
And the exchange rate is close to what you see today. For example – this is ICICI’s service and you can see that today’s indicative exchange rate is upwards of 52.30.
http://www.icicibank.com/pfsuser/icicibank/ibank-nri/nrinewversion/money_transfer/faqs/faq_ach.htm
Some services charge a couple of dollars extra as service fee but the total cost of a transfer is quite less.
I’m not familiar with how much it costs when you send money from India to US and while it may be inconvenient it shouldn’t be as high as a 2 or 3% of the total money.
That is correct when you assume that when funds are to be used in India. in this case my friends wants to invest in india for a longer term. so he has to incur cost of remittance when dollors would be converted to rupees. And again the cost of repatriation when rupees would be converted to dollors. presuming the exchange rates remain constant. interest earnings are tax free in NRE accounts in India, but every resident of USA has to declare his global income including interest income in india and pay taxes in USA.after adding it to his salary in USA.
After incurring these costs
in such a case I wonder, if it is ok to take exchange rate risks which may be unpredictable for a long term say 10 years from now?
I don’t think anyone knows what will happen ten years down the road, or as far as exchange rates are concerned even 1 year from now. These are good yields today (after tax and expenses) and apart from the exchange rate, I think the other stuff is fine.
The exchange risk is an unknown – if INR appreciates by 20% then that’s a huge gain, and if it depreciates by 20% then that’s a big loss. I don’t know how that will play out and I don’t think anyone else knows that either.
As it stands today, this is a good yield and anyone who can stomach the exchange rate risk can dip their toes by investing in this.
unfortunately these high interest rates on NRI accounts are not going to remain high for long time. So it does not matter much if you earn 9.25 or 9.75% just for 1 year and I am sure by next year the rates will be below 7-8%. so instead of higher rates we should look for convenience, service and you own preference in selecting a bank or a branch. Another factor is availability of FDs for a longer period say 10 years where you might keep on getting same rate for that period If you choose a higher term.
an example is SBI which is the only bank giving 9.25% for 10 years. what say?
I don’t know about interest rate movements, today not a single person thinks that interest rates will remain this high one or two years down the line, and the market just doesn’t do what everyone expects it to do. So, I won’t be surprised if we see these highish rates for the year or two.
For convenience, yeah I agree with that – there are many times when you need to contact someone at the bank like forgetting the password, or misplacing a check or anything like that so convenience must be considered. It’s an important factor.
An NRI friend of mine in USA told me that he plans to invest his surplus savings in NRE account as a tool for his additional retirement savings! Keeping in mind cost of remittance, cost of repatriation, 30%income tax on globle income inUSA and foreign exchange commissions and the risks involved in it, I have advised him against it.
But I am no expert in finance. may be low interest rates and bad stock market in USA presently and absence of other safer earning avenues there must be prompting NRIs in USA to think otherwise. Could someone examine this issue and give an expert opinion.
Actually, the only risk is exchange risk – you can repatriate money to India at extremely low costs and good rates these days and there is no risk in money transfers. I don’t know how interest earned in India is taxed in the US but even if that were taxed at 30% it will still give the NRI a very healthy after tax yield.
If someone makes a deposit and the rupee depreciates by more than the rate of interest then that person loses out if they convert that back to INR or notionally because they could have just waited for some time and then send the money at the better rate. But no one knows how exchange rates will be one or two years down the line, and if you’re going to use that money in India then that risk actually no longer exists.
These are extremely good rates offered by some safe banks so I think it makes sense for NRIs to take advantage of these rates.
Well the whole idea behind increasing the NRI (External) deposit rates was to arrest the fall of the rupee, making more and more NRIs from foreign offshores to hold more of the ruppee deposits there by arresting the fall of rupee which has fallen almost 24% since Jan, 2011, and perhaps it worst fall since rupee depreciation.
The above rates have mostly been in effect since December end. But it is very crticial for us to know that very few of the branches are being hold by some of the regional banks at foreign locations.
so most branches are hold by Bank of Barod, SBI, Kotak Bank, Yes Bank etc. So their interest rates make it more crticial. At the same time some banks are providing higher rates at NRO deposits than the NRE deposits.
Source: 1) http://reformistindia.in/2011/12/18/nri-fixed-deposit-interest-rates-banks-highest/
Read somewhere that the freeing up of NRE deposit rates is bad for the Realty market as NRIs can easily get risk-free, tax-free about 10% interest on their savings, rather than going for risky real estate assets.
@ Ashok,
Freeing up of NRE deposits and such high interest rate will surely attract more deposits.The biggest advantage is that it is all tax free.
However, NRIs who invest in real estate markets are probably looking at higher returns and are very well conversant with regulations like Non Repatriable, taxes on capital gains etc. Moreover, real estate buying is a lengthy process and any NRI who is committed to do such an investment will go ahead with it.In many cases the objective is also more than just investment.
I personally believe, short term funds and less investible surplus will get attracted to NRE deposits but real estate buying will still gather pace.
I don’t know how far it will materialize Ashok but if real estate prices cool down a bit that won’t necessarily be a bad thing.
I think we’re headed towards a situation where people are taking big loans to own a second house that they just want to sell at a higher price akin to what happened in the US and is currently going on in China. I think that’s very bad for the market due to the high exposures banks have to the real estate sector and of course for regular people who are then not able to afford houses.
If we see big banks taking big real estate losses that will spill over to the rest of the economy, and would be very bad. It’s best that real estate prices cool down before that.
That’s my opinion anyway!
What about SBI. I think it also gives 9,5%,
Thanks – will add that, 9.25% for 1 – 10 years.