For US-based NRIs and PIOs, keeping money and investments spread across both the USA and India has become a practical necessity. Recent regulatory improvements and advances in digital fintech platforms have made cross-border asset management much more straightforward.​

However, headline interest rates marketed by banks and financial institutions often do not show clear pictures of the actual RoI investors can expect. 

This article compares NRE/NRO FDs, FCNR deposits, and GIFT City accounts for US NRIs seeking optimal fixed income returns from Indian banks in 2025.

Why does it become necessary for US NRIs to look beyond HYSAs?

High-Yield Savings Accounts (HYSAs) are liquid and safe options to park short-term money and still earn attractive annualized yields (APY or Annualized Percentage Yield) in the US. However, often it becomes necessary to look beyond HYSAs and diversify savings to Indian assets. 

• Leveraging higher rates of interest in India - Indian NRE and FCNR fixed deposits offer higher long-term interest rates than HYSA. Compounding of interests earned on deposits generate far greater return on investment over time. 

• Unpredictable US Rates: HYSA interest rates in the US can change at any time and currently fluctuate between 4-5% APY. Unlike FDs in India, HYSAs usually don’t lock in yields, exposing you to sudden rate drops.

• Geopolitical portfolio risk diversification - Investing in NRE and FCNR deposits in India allows NRIs to diversify geographic exposures of their wealth. In the fast-changing geopolitical situations across the world, this is a prudent investment strategy.

• Managing cross-border liquidity - In cross-border saving, access is everything. HYSAs, while liquid within the US, often require a two-step process to move money overseas: transfer to a US checking account, then initiate an international wire. Timeframes can range from same-day to several business days. NRE and FCNR fixed deposits are tax-free in India, accept investments in USD, and are fully repatriable. These features make investing in NRE and FCNR deposits beneficial for INR-denominated expenses. Investing in USD also helps avoid currency risks.

Investment options in India for NRIs: beyond US HYSAs

The Indian financial system offers several fixed-income instruments for managing cross-border liquidity as well as long term wealth generation. US NRIs can leverage these instruments for complementing their HYSA savings. They can also serve as substitutes depending on personal financial objectives. 

The primary options include:

• NRE fixed deposits

• NRO deposits 

• FCNR Deposits

• GIFT City Deposits

• Debt mutual funds

Understanding the nuances of each option helps tailor portfolios for tax efficiency, repatriation flexibility, and return optimization. Debt MFs are market linked and not a truly risk-free investment. The discussion in this article will be restricted to NRE and NRO FDs, FCNR FDs and GIFT City Accounts. 

Key features of NRE/NRO FDs

Fixed deposits offered in Non-resident External (NRE) and Non-resident Ordinary (NRO) bank accounts are conventional fixed-income investments for NRIs. 

NRE fixed deposit feature: 

• Purpose - Investing earnings in foreign currencies in INR-denominated term deposits. 

• Taxation - Interest income is entirely tax-exempt in India. However, US-based NRIs must report such investments and interest incomes in their IRS tax returns and pay taxes in the US. 

• Repatriation - Both the principal and interest income is freely repatriable to the USA. 

Point to be noted: Repatriation of NRE FD funds may expose investors to foreign exchange risks as it involves converting INR-denominated FDs to USD for US NRIs. 

NRO fixed deposit features: 

• Purpose - Investing incomes (e.g., rent, pension, dividend, etc.) earned in India in INR-denominated term deposits. 

• Taxation - TDS is deducted from interest earnings at a 30% tax rate along with surcharge and cess. NRIs can claim a refund if the tax liability is lower. US-India DTAA allows US NRIs to opt for a lower TDS rate of 15% with valid tax documents. 

• Repatriation - The principal and interest income earned can be repatriated up to a maximum annual limit of USD 1 million in a financial year. Transfer from NRO to NRE accounts also comes under the same limit.  

Point to be noted: Repatriation of funds from NRO FD also exposes investors to foreign exchange risks. 

FCNR deposits: currency protection with stability

FCNR or Foreign Currency Non-resident accounts are an attractive financial alternative for NRIs who want to invest in India but avoid the forex risk associated with the conversion of earnings in foreign currencies to INR.

FCNR fixed deposit features: 

• Purpose - Protecting income earned in foreign currencies from volatility in the INR exchange rate while benefiting from the higher domestic interest rates in India. 

• Repatriation - The principal and the interest earnings are fully and freely repatriable to overseas bank accounts. 

• Taxation - Both the deposits in FCNR accounts and interest income from FCNT FDs are tax-exempt in India. 

Points to be noted: NRIs can open FCNR accounts and invest in FCNR fixed deposits only with income earned in foreign currencies. A transfer from an NRE account can also serve the purpose. 

GIFT City accounts: USD banking in India

GIFT City accounts offer unique opportunities for NRIs looking to invest their foreign currency earnings in India without the restrictions associated with FCNR accounts (e.g., penalty on early withdrawal). GIFT City accounts let NRIs invest not only in USD-denominated fixed deposits but also in international mutual funds, alternative investment funds (AIFs), and PMS. FD tenures can be as short as 7 days, with flexible pre-closure and no harsh penalties.

GIFT City accounts features: 

• Purpose - Availing deposits of shorter tenures (as low as 7 days) compared to FCNR, access to cross-border financial instruments, tax efficiencies, and protection under the global regulatory environment of IFSCA. 

• Diverse investment options - As an International Financial Services Centre, GIFT City offers a range of investment opportunities, including Alternative Investment Funds, Portfolio Management Services, and real estate-linked investment instruments. It suits the investment appetite of high-net-worth NRIs. 

• Tax efficiency - Highly favourable tax environment for NRI investors. Some of the tax advantages include zero capital gains tax on securities traded on IFSC exchanges, zero security transaction tax, zero commodity trading tax, and zero stamp duty. Besides, interest income from term deposits in GIFT City accounts is tax-exempt. 

FCNR and GIFT City USD FDs do not expose NRIs to INR-USD currency fluctuation risk, making them preferable for those seeking to preserve capital value in USD

Returns & tax comparison: NRE/NRO FDs vs FCNR vs GIFT City  

Advanced wealth management tactics: diversification and integration

US-based NRIs are moving beyond simple yield-seeking and into integrating the wealth management practices with platform thinking. This includes:

• Pairing HYSAs with cash-management brokerage tools that enable both instant investing and access to liquidity.

• Using multi-currency structures in GIFT City to hedge against USD volatility or to plan for future moves to other global destinations.

• Integrating professional advisory support, digital dashboards, and automated tax reporting into a seamless, global financial routine.

Compliance and Reporting: Essential Steps for US NRIs

IRS Reporting: All global interest income must be disclosed on your IRS tax return, use Schedule B, and also file FBAR and FATCA Form 8938 if you cross the reporting thresholds.​

Avoid Double Tax: For NRO FDs, claim credit for Indian taxes paid using IRS Form 1116 and submit US TRC and Form 10F to lower Indian TDS.​

Document Trail: Retain all bank statements, form copies, and TRC records in case of audits in both jurisdictions.

Embracing the Complexity and unlocking Global Opportunity

The days when a single “best” savings account determined financial health are over. Are you aiming for preservation of capital over a longer period of time and benefit from Indian interest rates should choose term deposits in their NRE accounts. FCNRs are suitable for shorter holding periods. Alternatively, GIFT City instruments are for sophisticated investors with a higher risk appetite and long-term strategic financial goals. 

By combining digital-first HYSAs, cutting-edge GIFT City offerings, vigilant compliance, and an agile, platform-driven approach, NRIs can thrive in a fast-changing financial world. Regular reviews, integration with investment strategies, and smart attention to digital risks ensure that savings aren’t just safe, but are actively working for every international goal an NRI might pursue.

Frequently Asked Questions

1. Can US NRIs open joint NRE, NRO, or FCNR accounts with resident family members in India?

NRE and FCNR accounts can only be jointly held with other NRIs/PIOs. NRO accounts can be jointly held with resident Indians, but there are specific operational and repatriation rules.

2. Can I convert an existing US HYSA to an NRE or FCNR deposit directly, or do I need to transfer funds through an intermediary account?

Most US banks require you to transfer HYSA funds to a US checking account first, then process a wire transfer to your Indian NRE/FCNR account. Direct HYSA-to-FD conversion is not supported, and timing, fees, and currency conversion rates will impact your final credited amount.

3. If INR depreciates heavily, can I switch my NRE FD funds into an FCNR or GIFT City USD FD to manage currency risk?

Yes, many banks support conversion or transfer from matured NRE FD balances into FCNR or GIFT City USD deposits, enabling NRIs to shift out of INR exposure if concerned about future currency volatility.