NRE/NRO Accounts: How To Save on Transfers To India

As a Non-Resident Indian (NRI) living and working abroad, you'll have some options when it comes to managing INR from overseas. While the law prohibits you from opening a standard bank account in India as an NRI, you'll nonetheless still be able to open one of two types of accounts with an Indian bank: either an NRE account or an NRO account.

These two types of bank accounts serve two completely different types of customers, and carry very different functions altogether:

NRO and NRE Accounts: What's the Difference?

Simply put, the major difference between a Non-Resident External (NRE) and a Non-Resident Ordinary (NRO)account (and which is ultimately right for you) depends largely on the source of income.

If you're both living and earning an income in a foreign country, then you're eligible to apply for an NRE account. On the other hand, if you're earning income in India while living in a foreign country, you're eligible for an NRO account.

This difference is due to how the two account types are structured according to the Reserve Bank of India (RBI). For example, NRO accounts allow money to be deposited and withdrawn in both a foreign currency and in INR and can also be owned jointly with an Indian resident. NRE accounts are more rigid and don't allow most of the above benefits. They are, on the other hand, completely free of tax on interest. To find out more, take a look at a full breakdown of the key differences below:

NRO and NRE Accounts: Which To Choose?

In short, if you're living abroad while still earning an income in any form in India (e.g. from rent, dividends, or other passive income), and if you intend only to use those funds to pay in India using INR, then we recommend that you look to open an NRO account.

If, on the other hand, you're living abroad and would like to send money back to India flexibly, then we recommend that you open an NRE account instead. (Be aware that, depending on which country you're living in, there may be a limited number of Indian banks operating that will offer you access to an NRE account.)

NRE and NRO Accounts: How To Send Money Home

Sending money back to India using an NRE or NRO account tends to be a straightforward process, with both account types allowing you to make deposits in a foreign currency.

NRE accounts, especially, are a prevalent option for NRIs living and working abroad because they allow the quick and easy deposit of foreign currency that's automatically exchanged into INR. In this way, foreign earnings can then be used to send to family members in India or pay bills in the country, all in Indian currency!

To send money to India from abroad using your NRO or NRE account, you'll generally need to send a bank transfer from your foreign bank account to your NRE account first. If you'd like to send to your NRO account, this will be an additional step.

Sending Money to NRE and NRO Accounts

While undoubtedly a low-cost, safe, and flexible option for many NRIs living and working abroad, sending money from a foreign country to India using NRO and NRE accounts can be expensive nevertheless.

This is because of the following two types of costs:

Transferring to an NRO or NRE Account: Transfer Fees

Keeping your NRE or NRO account up and running will cost you. While maintenance fees vary from bank to bank, they're generally charged if your deposit amount falls under a certain threshold. For example, Axis Bank will charge you as much as ₹10 for every ₹100 that you fall below the ₹25,000 minimum balance requirement, while ICICI Bank will charge you ₹100 plus 5% of the amount you fall under the same minimum. Quite steep!

Over and above these fees, you may be charged other types of fees depending on how you use your account. These could include debit card fees, transaction fees, account renewal fees, and account opening fees, to name only a few.

These costs are often not made explicitly known, and they can also differ substantially depending on which bank you choose. We advise that you contact your bank in advance to get a rundown of which transfer fees you might expect to pay on your NRE or NRO account.

Transferring to an NRO or NRE Account: Exchange Rates

Another major (and significantly less obvious) cost that you'll face when sending money back to India using an NRE or NRO account will be an exchange rate margin.

When you send money from a foreign currency to INR, your bank will — in essence — be buying your foreign currency from you and selling you INR in exchange. The bank will make a small profit by doing this, as the exchange rate it'll charge you will be slightly worse than the "real" exchange rate (i.e. the one you may find on Google called the mid-market exchange rate).

Once again, exchange rate margins for Indian banks vary considerably from bank to bank and from currency to currency. In general, however, you can expect to pay a margin of around 2.5% to 3% on USD to INR conversions and around 3% to 6% on GBP to INR conversions. However, be aware these margins can sometimes be much higher still!

Lower-Cost Alternatives

When sending money to India from abroad, there are several ways to dodge the high costs when depositing your funds into an NRE or NRO account:

For example, if you're sending money from the US to India, see our analysis of the cheapest money transfer services here. If you're sending money back to India using ICICI Bank from either Canada or the United Kingdom (UK), take a look at our guides for the two countries, respectively here and here.

In short, our advice is simple if you're looking to save money. For transfers from your foreign bank account to your NRO account (or any resident Indian bank account, for that matter), we recommend using a money transfer service, as your NRO account will be able to receive deposits in a foreign currency. If you're looking to send money to India from the United States, take a look at our guide for getting the job done as cheaply and effectively as possible.

What's more, many transfer services convert INR across the globe, and you can find the cheapest options using our comparison engine below:

For example, if you're an NRI living and working in Canada, if you were to use ICICI Bank Canada to send $2,500 to your family living in India, they'd receive around ₹134,430. On the other hand, if you were to use Wise for the same transfer, they'd receive a considerably higher ₹136,509!

See the graph below to get a better sense of how a traditional Indian bank such as ICICI Bank Canada compares with the cheapest currency exchange services for the above transfer:

Wise — A Sending and Spending Alternative

If you're looking to send money to India on a more frequent basis and rely less on your NRE or NRO account to provide your financial services, then we recommend you explore Wise's Multi-Currency Account. A digital challenger bank launched by Wise, a Borderless account will allow you to hold balances in up to 40 different currencies, including in the INR . Moreover, with the Wise Multi-Currency Account, USD to INR conversions will cost you only 0.60%. In comparison, EUR to INR conversions will cost you 0.56% — a fraction of the cost of transferring using a traditional bank.