Farm Management Deposits allow farmers to take up to $800,000 from their pre-tax profit in good years and set it aside for use during tough times like drought, or to rebuild after.

The Coalition Government changed the law in 2016 to allow FMDs to be used to offset interest against a mortgage, as a home owner might have an offset account on their mortgage.

NAB became the first major bank to offer a product allowing FMD offsets following a drought roundtable convened by Minister for Agriculture and Water Resources David Littleproud four weeks ago.

In the past week the Commonwealth Bank (CBA) and Rabobank have since announced changes to their FMD policies.

The CBA says it will make a credit adjustment for customers with eligible FMDs and business loans.  The amount of the adjustment will be calculated based on the relative balances of the FMD and the business loan.

This will be calculated for FY18 with the credit made pending customer acceptance of this offer.

“We believe this will benefit those farmers with eligible FMDs, especially those who are in need because of the worsening drought,” Grant Cairns, Executive General Manager, Regional and Agribusiness Banking, said.

“Our priority is helping farmers who are doing it tough because of the drought. We are pleased to extend our package of drought assistance measures to include this new offer for farmers with eligible FMDs and business loans, which we believe will give them additional peace of mind.”

Minister for Agriculture David Littleproud said FMD offsets were designed to give farmers the tools to cope with drought and be better prepared for future droughts.

“Farmers now have real choice. With this announcement by CBA, the previous announcement by NAB and the fact Rural Bank has offered FMD offsets for years, farmers can choose a bank which offers an FMD offset product,” Mr Littleproud said following the CBA announcement.

This morning Rabobank announced it will offer loan clients assistance towards offsetting interest on their farm management deposits (FMDs) against loan interest.

However, details are still forthcoming.

Rabobank Australia CEO Peter Knoblanche said clients would receive further details on the bank’s FMD offset solution – which will involve an adjustment for eligible customers with farm management deposits and rural loans – in coming weeks.

“The bank has reviewed its product offering – particularly in light of the current severe dry conditions facing farmers in parts of the country – and is pleased to advise it will implement a solution to assist loan clients to offset interest on their FMDs against their loan interest,” Mr Knoblanche said.

“This benefit will be in addition to other options the bank’s clients already have to manage their interest costs through their flexible specialist rural loans.”

Rabobank last week announced a range of measures to support clients impacted by drought, and confirmed it will not apply higher (penalty) interest rates on loans in default due to drought and in cases of natural disaster.

Sources: Minister for Agriculture and Water Resources, Commonwealth Bank, Rabobank