@kdutta ,Namashkar.
Whereas I do not have experience in owning NRE or NRO accounts, I am aware of the US tax implications of such accounts.
(a) Are you a US person ( citizen / GreenCard/ Resident for Tax purposes ) ? I ask because as NRA you do not need to report the earnings in such schemes.
(b) There are no special handling / carveouts in the US-India Tax Treaty -- this is just interest income.
(c) Issues that are most vexing ( depending on the actual facts & circumstances) are:
1. For NRE accounts earnings while not taxed in India still have to be recognized and taxed in the USA. And to this add the uncertainty/ effects caused by exchange rate. You recognize these earnings ( for US purposes ) as interest earnings. Since India does not tax the earnings there is NO Foreign Tax credit ( No double taxation ).
2. For NRO accounts, because India taxes these, you have eligibility for Foreign Tax Credit but generally no exchange rate degradation issue. Your reporting / recognition is dependent on the type of income deposited into the account ( savings/CD interest , rental income. business income etc. )
Given the general nature of your question , I do not know for certain if I have answered your query in full or not . I will await your response .
