John sent in the following email yesterday, and I thought this was a good topic for a post.
I have opened NRE account but still not clear on transfer of money to NRE. If i want to transfer money to NRE account from overseas, will it transfer in foreign currency or it first gets converted into INR and then transferred to NRE account.
What is best, transferring money from local overseas bank or transferring through eRemit or Western Union.
Also is it good idea to transfer the local currency into USD and then transfer into NRE or can we transfer the local currency directly in USD into NRE account.
This is a common question because there is in fact no link between an international bank, say a Bank of America and a NRE account opened with an Indian bank, and once you open a NRE account, it isn’t intuitive what the next step should be. The two accounts you now own are two distinct entities with no link to each other, and you need to use a third service to link the two and fund your NRE account.
A lot of Indian banks have their own money transfer service, and you can use that to fund your NRE account or use a third party service like Xoom.
What is the best way to transfer money to India?
I would imagine that the answer to this question depends on which country you are transferring money from, and while I don’t know about other countries, I can speak with some confidence as far as the US is concerned. Using Western Union or any other wire exchange service usually costs a lot more than a money transfer service like ICICI’s Money2India or Xoom. I have used Money2India for a very long time myself till I discovered Xoom, which is perhaps the best money transfer service (for India) that exists today. It is quick, has low fees, gives you a good exchange rate, and is transparent with the exchange rate you will get as well as what status your transfer is in.
If Xoom operates in your country then I suggest you give it a try, if not, then try one of the other services that
If you are overseas then transferring money from your resident country to your NRE account is the best bet.
A little background on the NRE account now. One of the key features of the NRE account is that the money in the NRE account is freely repatriable which means that it can be sent out of the country any time and there is no upper limit on it. This is different from other accounts like the NRO account which has a clearly defined limit, and in general the tendency of the government and RBI is to keep a close watch on foreign exchange going out of the country, and don’t allow it so easily.
The second important thing about this type of account is that the interest is completely tax free, and this is also different from any other account type.
In this light, it is easy to see that the ways you can fund your NRE account is limited. You need to use foreign currency to fund this account, and the easiest way to do that is to remit the money from your host country to India. If you are already in India and have foreign currency with you then you can also use that to fund your NRE account.
You can’t deposit INR in a NRE account fund it so the option to convert foreign currency to INR doesn’t really exist, and if your foreign currency is not one that is freely convertible then you need to first convert it in a freely convertible currency, and then deposit that in your NRE account.
Please ask any questions that I may have missed addressing in the post in the comments, and I’ll answer them.