Introduction

Non-resident Indians (NRIs) living in the United States often manage finances in both countries, making it essential to explore the best savings options available. To make the most informed decision, it's important to understand the advantages of the banking systems in both nations. 

Traditionally, NRIs have relied on NRE/NRO accounts for managing funds in India. Now, for the first time, they can hold US Dollar-denominated savings through these accounts at GIFT City (Gujarat International Finance Tec-City). As India’s own International Financial Services Centre (IFSC), GIFT City provides an alternative to banking hubs like Dubai, Singapore, and Hong Kong, giving NRIs a regulated way to keep foreign currency savings closer to home.

What Is a High Yield Savings Account?

A High Yield Savings Account (HYSA) is a deposit account offered by US financial institutions that provides significantly higher interest than standard savings accounts. While regular savings accounts at major US banks may offer interest rates around 0.01% APY (Annual Percentage Yield), HYSAs typically offer rates of up to 4.66%.

These accounts use compound interest, where you earn interest on both your initial deposit and accumulated interest over time.

HYSAs are primarily offered by:

• Online banks (such as Ally, Marcus by Goldman Sachs, Capital One 360)

• Credit unions

• Traditional banks with online banking divisions

Approximately 80% of  HYSAs feature digital banking platforms with mobile applications for convenient account management.

Benefits of High-Yield Savings Accounts

Higher Interest Than Traditional Savings Accounts

The primary advantage is the superior interest rate compared to standard bank accounts. HYSAs can provide 10-20 times higher returns than traditional savings accounts.

Easy Access and Liquidity

Unlike certificates of deposit or investment accounts, HYSAs generally allow quick access to funds. Most accounts support electronic transfers, bill payments, and sometimes debit access. However, many HYSAs often limit withdrawals to six per month, which may make it harder to access funds frequently or manage urgent transfers.

FDIC Insurance Protection

Funds in HYSAs at FDIC-insured banks are protected by up to $250,000 per depositor per bank, with joint accounts covering up to $250,000 per co-owner. This government insurance ensures your money remains secure even if the financial institution fails.

No or Low Maintenance Fees

Many High Yield Savings Accounts (HYSAs) have minimal fees, with online banks often eliminating monthly maintenance fees and minimum balance requirements. However, some accounts may have monthly subscription charges for additional services or features. It is important to carefully review each account’s terms to avoid unexpected fees, which could include charges for things like excessive withdrawals or wire transfers.

Drawbacks of High-Yield Savings Accounts

Taxable Interest Income

All interest earned in HYSAs is subject to federal income tax and potentially state income tax. Financial institutions report this income to the IRS via Form 1099-INT, which reduces the effective yield.

May Not Keep Pace With Inflation

High Yield Savings Accounts (HYSAs) generally follow the Federal Reserve's rate adjustments. When the Fed lowers interest rates, HYSA rates often decline as well. For example, after the Federal Reserve reduced the federal funds rate to a target range of 4.25% to 4.50%, HYSA rates typically decreased. Although HYSAs usually offer higher returns compared to standard savings accounts, they may still struggle to outpace inflation during high inflation periods.

Transfer Limitations

Some HYSAs impose monthly transaction limits or delay transfers. Funds transferred between banks typically take 1-3 business days to process.

What Is a GIFT City Savings Account?

GIFT City is India's first International Financial Services Centre, designed to provide offshore banking services similar to global financial centres like Singapore and Dubai. Located in Gujarat, India, GIFT City operates under special regulations that allow foreign currency transactions.

GIFT City banks operate under the supervision of the International Financial Services Centres Authority (IFSCA) and the Reserve Bank of India (RBI).

For US NRIs, one of the key offerings is the Foreign Currency Non-Resident (FCNR) account, available in USD, EUR, GBP, and other major currencies. With an FCNR account, NRIs can earn interest on fixed deposits held in foreign currencies in India, for terms ranging from one to five years, without worrying about exchange rate risk. Major Indian banks with GIFT City branches include State Bank of India, ICICI Bank, HDFC Bank, and Axis Bank.

Benefits of GIFT City Savings Accounts for US NRIs

Tax-Free Interest in India

Interest earned on GIFT City accounts is currently tax-exempt in India. Under the IFSC regulations, income earned within GIFT City is tax-advantaged, including a tax holiday on interest income for non-residents. NRIs can enjoy tax-free interest on specific products within GIFT City, including certain dollar-denominated bonds and insurance policies.

 The 2025-26 Union Budget proposed tax-free maturity proceeds for ULIPs and endowment plans with premiums under 10% of the sum assured. These benefits are not applicable to all products, so NRIs should check the tax details for each investment.

Dollar-Denominated Accounts

GIFT City allows US NRIs to maintain both foreign currency, depending on the bank and product type. Foreign currency-denominated accounts, like USD, EUR, or GBP, offer the benefit of avoiding the risk of rupee depreciation, ensuring your funds remain stable in USD or other foreign currencies. This makes it easy to transfer money to Indian accounts without worrying about exchange rate fluctuations. Additionally, these accounts often offer higher interest rates compared to similar US accounts, potentially providing better returns on your savings.

Access to Indian Financial Products

Having a GIFT City account provides access to Indian financial markets, allowing NRIs to invest in Indian equities, mutual funds, bonds, and other financial instruments more easily.

Regulated, Secure Environment

While most bank accounts in India are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) for up to ₹5 lakh (approximately $6,000), GIFT City accounts are currently not covered by this insurance. GIFT City operates under its own regulatory framework, managed by the International Financial Services Centres Authority (IFSCA), which does not include DICGC insurance for deposits in the city at this time. However, the regulatory oversight in GIFT City ensures a secure and well-supervised environment for financial transactions and operations. Banks operating in GIFT City are required to hold higher capital reserves than normally required for Indian banks. This helps keep your funds secure.

Simplified Fund Repatriation

GIFT City accounts have streamlined procedures for transferring funds to the US or to other Indian accounts, providing flexibility for managing money across countries.

Why GIFT City Savings Accounts Are a Strong Alternative to HYSA

1. Tax Exemption on interest Earned 

Interest earned on GIFT City accounts is exempt from Indian taxes, making it more attractive than the taxable interest earned on HYSAs in the US. This tax benefit can significantly improve the effective yield for NRIs. However, NRIs must report the interest earned on GIFT City accounts as income to the US IRS for reporting purposes. 

2. Currency Flexibility

GIFT City accounts allow NRIs to hold funds in USD, preventing the need for conversion to Indian Rupees. This ensures savings retain their value and eliminates exchange rate risks.

3. Access to Indian Investment Opportunities

NRIs with GIFT City accounts can easily access Indian financial markets, including equities and mutual funds. This opens up investment opportunities in one of the world's fastest-growing economies.

4. Higher Yields

GIFT City accounts offer competitive interest rates, often surpassing those of US-based HYSAs. When combined with tax exemptions, the effective yield can be more attractive for long-term savers.

5. Easy Repatriation

GIFT City accounts offer a simple and efficient way to transfer funds to the US, ensuring seamless cross-border transactions. This flexibility makes managing savings across countries more convenient. Also, the transfer from GIFT City USD accounts to US Checking Account is a USD-USD transfer so there is no cost of currency conversion during repatriation.

6. Secure Banking

GIFT City accounts are regulated by the Reserve Bank of India (RBI) and insured by the DICGC, ensuring robust security. This provides NRIs with the same level of protection as other international banking hubs.

Key Considerations Before Making Decisions

US Tax Reporting Requirements

US NRIs must report foreign financial accounts to the IRS if the aggregate value exceeds $10,000 at any point during the tax year, using the Report of Foreign Bank and Financial Accounts (FBAR). The Foreign Account Tax Compliance Act (FATCA) may require additional reporting on Form 8938.

Currency Conversion Considerations

While dollar-denominated accounts eliminate immediate currency risk, eventual conversion exposes funds to exchange rate fluctuations. NRIs should consider their long-term currency needs when planning their savings.

Regulatory Compliance

Maintaining accounts in both jurisdictions requires attention to evolving regulations in both countries. Changes to tax treaties, reporting requirements, or GIFT City regulations could affect the benefits of these accounts.

Banking Institution Selection

When choosing a GIFT City account, select established banks with strong track records and comprehensive digital services that facilitate remote account management from the US.

Conclusion

For US-based NRIs, choosing between a High Yield Savings Account (HYSA) and a GIFT City Savings Account comes down to individual financial goals and preferences. HYSAs offer liquidity, FDIC protection, and stable returns but with taxable interest. GIFT City accounts provide tax-free interest in India, higher yields than HYSA, and USD-denominated options, making them ideal for long-term savings and Indian investments. Consider maintaining emergency funds in an HYSA while using GIFT City for tax-efficient growth. Always factor in FBAR/FATCA reporting for foreign accounts exceeding $10,000 to ensure compliance. A balanced approach optimises returns across both financial systems.