NRE Account vs Normal Savings Account: What’s the Difference?

Posted on Monday, December 11th, 2023 | By IndusInd Bank

A savings account is key to managing personal finances effectively. It offers a secure place to park your money and earn interest on it. Being highly liquid, a savings account allows individuals to access funds as and when they need. However, for Non-Resident Indians (NRIs), a traditional savings account is not an option they can avail.

The Reserve Bank of India (RBI)’s Foreign Exchange Management Act (FEMA) restricts NRIs from using resident bank accounts. NRIs need specialized Non-Resident External (NRE) savings accounts to enjoy the benefits of a regular savings account along with the repatriation of funds.

These two accounts differ in terms of eligibility, permitted deposits, taxation, repatriation and joint-account rules. Understanding these differences becomes especially important when you move abroad and your residential status changes.

What is an NRE Savings Account?

NRE savings accounts are specialized rupee-denominated bank accounts designed for NRIs to deposit their earnings in a foreign currency. These accounts, maintained in INR, are fully repatriable, allowing both the principal and interest amount to be transferred outside the country without any restrictions.

NRE account holders can also make physical foreign currency deposits during a visit to India through cash, bank drafts, personal cheques, or travellers’ cheques. Funds held in an NRE account can be withdrawn for local disbursements, equity investments, remittances outside India, buying immovable property, or transfers to another NRE or Foreign Currency Non-Resident (FCNR) account. 

Interest earned on an NRE savings account is exempt from income tax in India for eligible NRIs.

What is a Normal (Resident) Savings Account?

A normal savings account is designed for individuals who qualify as residents of India. It is used to receive income, build savings and manage everyday payments.

You can use a resident savings account for salary credits, utility bills, UPI payments, debit-card transactions, fund transfers and other personal banking requirements. The account earns interest on the balance as per the bank’s applicable rate. Interest earned on a normal savings account does not receive the tax exemption available to an NRE account. It forms part of the account holder’s taxable income which is subject to applicable tax rules and deductions.

Once a person becomes an NRI, the existing resident savings account cannot continue in the same form. It must be redesignated as an NRO account.

Difference Between NRE Accounts and Savings Accounts

Why Can’t NRIs Hold a Resident Savings Account?

Indian bank accounts are classified according to the account holder’s residential status under FEMA and RBI rules.

When you move abroad for employment, business, studies or another purpose that changes your residential status, you must inform your bank. Your existing resident savings account must then be redesignated as an NRO account.

This change allows the bank to apply the correct rules for permitted credits, taxation, foreign remittances and repatriation. Continuing to use a resident savings account after becoming an NRI creates a mismatch between your actual status and the bank’s records. The resident account does not automatically become an NRE account. It is redesignated as an NRO account. You can separately open an NRE account to manage money earned outside India.

How to Open an NRE Savings Account Online

1. Visit the official NRI banking page: Select the option to open a new NRE or NRO savings account.
2. Enter your details: Provide your name, email address, country code and mobile number. Verify your mobile number using the OTP.
3. Select an NRE savings account: Choose the NRE account if you want to manage overseas earnings in India.
4. Keep the documents ready: You will need a recent photograph, passport copy, PAN card or Form 60, proof of NRI status and valid address proof.
5. Complete KYC verification: Follow the identity and document verification process shared by the bank. The verification route depends on your country of residence and applicant category.
6. Add a joint holder or mandate holder: Provide the required details if you want another eligible person to access or operate the account.
7. Fund the account: Transfer money through an approved overseas remittance channel or another permitted source.
8. Activate banking services: Once the account is opened, activate your debit card and register for net banking and the mobile banking app.

Manage Your Overseas Earnings with the Right Savings Account

A normal savings account works well while you are a resident Indian. Once your residential status changes, your banking arrangements must change with it.

Use an NRO account for your existing resident account and income received in India. Open an NRE savings account to transfer and manage your overseas earnings while keeping the funds fully repatriable.

Frequently Asked Questions

Q1. Can an NRI continue using their resident savings account after moving abroad?

No. Once your residential status changes to non-resident, you must inform the bank and redesignate your resident savings account as an NRO account.

You can separately open an NRE savings account to transfer and manage your overseas earnings.

Q2. Is the interest earned on an NRE savings account taxable?

Interest earned on an NRE savings account is exempt from income tax in India for eligible NRIs under applicable rules.

Your country of residence can tax this income under its local tax laws. Check the tax rules applicable in the country where you live.

Q3. What is the minimum balance for an IndusInd Bank NRE savings account?

IndusInd Bank currently requires an Average Quarterly Balance of ₹10,000 at A and B category branches. The requirement is ₹5,000 at C and rural category branches.

The bank will confirm your selected branch category during the application process.