The first thing almost every Non-Resident Indian discovers is that they can no longer keep an ordinary Indian savings account. Once your status changes to NRI, the law (under India's Foreign Exchange Management Act, or FEMA) requires a different kind of account — and there are three, designed for three different jobs.

NRE — for the money you earn abroad

A Non-Resident External (NRE) account is the home for income you earn outside India — your foreign salary, sent back and converted into rupees. Its two great advantages are repatriability and tax: both the principal and the interest can be freely sent back out of India at any time, and the interest is exempt from Indian income tax. The trade-off is currency risk — because the money sits in rupees, a falling rupee erodes its value in dollar or pound terms. NRE is the account for the NRI who wants to move foreign earnings into India while keeping the freedom to take them out again.

NRO — for the money you earn in India

A Non-Resident Ordinary (NRO) account is for income that arises within India — rent from a flat, dividends, a pension, the proceeds of something you sold. It is the account that keeps your Indian financial life running. But it comes with two important limits: the interest is taxable in India (with tax deducted at source), and repatriation is capped — generally up to USD 1 million per financial year — and requires tax paperwork (the well-known Form 15CA/15CB certificates) before money can leave the country. NRO is essential, but it is the more restricted of the two rupee accounts.

FCNR(B) — for those who fear the rupee

The third option sidesteps currency risk entirely. A Foreign Currency Non-Resident (Bank) — FCNR(B) account is a term deposit held in a foreign currency — US dollars, pounds, euros and others — for a fixed period of one to five years. Because your money never converts to rupees, you carry no exchange-rate risk, the interest is tax-free in India, and the deposit is fully repatriable. For an NRI who wants to earn Indian-bank interest without betting on the rupee, FCNR(B) is the instrument built for exactly that.

The short version

In practice most NRIs end up holding more than one: an NRE account to bring in and park foreign earnings, an NRO account to receive Indian income, and sometimes an FCNR(B) deposit to hold foreign currency safely. The mistakes that cost people are usually simple — routing Indian rent into an NRE account, or foreign salary into an NRO one, and creating tax and repatriation tangles that take years to unwind. Get the plumbing right first, and the rest of NRI investing gets much easier — which is where the next parts of this guide will go.

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Next in the series: how to actually move money out of India — repatriation, limits, and the forms that gate it.

Sources: Reserve Bank of India FEMA framework on deposits by persons resident outside India; standard NRI banking practice. Confirm current limits with your bank.