Hurdle Rate: The Return Your Money Must Beat Before an Investment Is Worth It
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5 min read
Someone offers you an investment that might return 5% a year. Is that good?
It depends on what your money earns when you do nothing. If a plain bank deposit pays 4%, then 5% looks like a small win for a lot more risk. That gap is the whole idea behind a hurdle rate.
A hurdle rate is the minimum return an investment must beat before it is worth taking. Below the hurdle, you say no. In this post you will build your own hurdle rate in four steps, using one invented deposit rate and two real Indonesian numbers.
Without a hurdle, every return sounds fine. "7% a year" feels good. But you cannot tell if it is good until you know what you could earn with almost no risk.
Think of a high jump bar. The bar is the hurdle. Clear it and the extra risk may have paid off. Miss it and you took risk for nothing.
Companies use hurdle rates to decide which projects to fund. You can use the same idea for your own savings. You just need a bar that fits your life.
Your starting point is what you can earn with very little risk. For most people in Indonesia, that is a bank deposit.
For this example, we use an invented deposit rate of 4% a year. It is not a quote from any bank. Replace it with the rate you can really get.
For scale, the deposit insurer LPS keeps its guaranteed interest rate (tingkat bunga penjaminan) for Rupiah deposits at commercial banks at 3,75% for 1 October 2026 to 31 January 2027, per Bisnis.com and Kontan reports of its 28 September 2026 decision. That is the highest rate at which LPS guarantees your deposit. It is not what every bank pays.
Deposit interest is taxed. Per DDTC and IKPI, interest on deposits at Indonesian banks faces a 20% final income tax withheld by the bank (PP 131/2000, changed by PP 123/2015). Final means the bank takes it and you owe nothing more on that interest.
Some small deposits are exempt. Sources disagree on how the Rp7,5 juta limit is read (the size of the deposit or the interest per year), so check with your bank. We use the standard 20% for a larger deposit.
Here is the math on our invented 4%:
On Rp100 juta, that is Rp3,2 juta a year instead of Rp4 juta.
Inflation is how fast prices rise. If prices rise 3% and your money grows 3%, you can buy exactly the same things as before. You did not get richer.
Statistics Indonesia (BPS) reported annual inflation of 3,28% for September 2026, up from 3,19% in August (as carried by Investortrust and Kontan, retrieved 2026-10-25).
Now compare:
Your safe money roughly stands still. After tax and inflation, it buys the same as last year, give or take a hair. For a deeper look at this, read what inflation does to cash and real yield versus nominal interest.
Here is the part no table can do for you. A riskier investment can lose money, take years to recover, or be hard to sell. You should want to be paid for that.
So add a risk cushion on top of the safe rate. This is your own choice. For this example, we pick 3 percentage points. Another person could pick 2 or 5.
This is NetWort arithmetic with invented inputs. It shows the method, not a number you should copy.
Say you have Rp100 juta and two ideas. Both figures below are invented expected returns.
Notice that Idea A is not a bad idea. It just does not pay enough for the risk, given your bar.
One warning. An expected return is a guess. Real results can be far lower or higher. A hurdle rate helps you say no. It does not promise that saying yes will work.
Your hurdle is not fixed. It changes when:
For context, Bank Indonesia held its BI Rate at 5,75% on 21 October 2026, per Bank Indonesia and Bisnis.com. The BI Rate is the central bank's policy rate. It influences deposit rates over time but is not the rate on your account.
If you want to track these moving numbers, the NetWort macro page shows rates and inflation in one place.
Write your own hurdle in three lines: your real after-tax deposit rate, today's inflation, and the cushion you want. Add them up. Then open your NetWort Dashboard and check whether your portfolio's return is clearing that bar, or only your risk is.