European households are good at saving. The European Commission estimates that bank deposits alone account for around €10trn of household savings across the EU. Much of that money is safe and accessible, but it is also earning relatively little.

Brussels wants more of those savings to move into capital markets, where they could help finance companies, innovation and jobs across Europe, while potentially giving households better long-term returns.

So why are many savers still hesitant?

Economists at the European Central Bank point to one obstacle that is easy to overlook but hard for ordinary investors to ignore: tax complexity. Different national rules, withholding tax procedures and cross-border refund systems can make investing in another EU country feel complicated, costly and less attractive than keeping money in a local savings account.

Even when higher returns are available elsewhere, many households choose the simpler option: leaving their money in the bank.

Why the system feels difficult

The ECB economists stated that one of the goals of the savings and investments union is to increase retail participation in EU capital markets. In plain terms, Europe wants ordinary people to become more active investors.

But the tax system often gets in the way.

Many EU countries apply withholding tax on dividends and interest paid to investors living in another member state. Those investors may also face tax in their country of residence. Tax treaties are supposed to prevent double taxation, but the process often requires investors to claim a refund after tax has already been withheld.

For a professional investor, that may be an administrative burden. For a household saver, it can be enough to give up.

The ECB noted that these procedures can be lengthy, costly and prone to friction. The European Commission previously estimated that inefficient withholding tax procedures cost investors €6.62bn a year, including unclaimed tax relief, opportunity costs and refund-related expenses.

For consumers, the emotional calculation is simple. If investing across Europe means forms, delays and uncertainty, a savings account feels safer and simpler, even when the return is lower.

The comfort of deposits

Tax rules are not the only reason households avoid capital markets. The ECB economists noted that savers have a strong preference for deposits, despite the difference between low returns on bank accounts and potentially higher long-term returns from equities.

That preference is not irrational. Many households save because they worry about emergencies, job security, taxes, pensions or future expenses. For them, a bank deposit is not just a financial product. It is peace of mind.

There is also the issue of trust. Investing can feel like entering a world of jargon, risk warnings and hidden costs. A deposit account is familiar. A cross-border investment fund with tax complications is not.

That is why the ECB’s message is more subtle than simply “tax less and people will invest more”. The level of tax matters, but so does the way tax is collected. If the system feels confusing, households may never get far enough to compare the returns.

Can simple accounts help?

One solution could be to make investing feel less intimidating.

The ECB pointed to savings and investment accounts as one way to encourage households into capital markets. These accounts are designed to be simple, transparent and often tax-advantaged, allowing people to invest in shares, bonds and funds through a structure they can understand.

Sweden’s Investeringssparkonto, or ISK, is often cited as a model. The ECB noted that it has the highest take-up rate in the EU, at 45%. Its appeal lies partly in its simplicity: no deposit limits, no minimum holding period and few restrictions on allocation.

Instead of taxing every realised dividend or capital gain, Sweden applies a simple annual tax based on the account value. It also introduced a tax-free base level of SEK 150,000 in 2025, rising to SEK 300,000 from 2026.

The ECB is not arguing that every country should copy Sweden. The broader lesson is that ordinary savers are more likely to invest when products are easy to open, easy to understand and easy to trust.

Luxembourg’s role

Luxembourg has a direct interest in this debate. As one of Europe’s largest fund centres, the Grand Duchy sits at the heart of the investment infrastructure that policymakers want households to use more often.

The ECB noted that Luxembourg is among the European countries that do not impose capital gains tax on the sale of long-term shareholdings in certain cases. But the bigger question for Luxembourg is not only domestic tax treatment. It is whether Europe can make cross-border investing easier for ordinary households.

If more savers move into funds, Luxembourg’s asset management and fund services industry could benefit from deeper retail participation. But the sector would also face pressure to support simpler, clearer and more consumer-friendly investment products.

Tax breaks are not magic

The ECB’s analysis also warns against overestimating tax incentives. Tax allowances can help, but they often benefit higher-income households more. Tax exemptions can encourage participation, but they may be costly for public finances. Tax deferrals can support long-term saving, but need limits. Flat taxes are simple, but less targeted.

The broader point is that tax incentives must be designed around real people, not only around market theory. A household that does not understand the product, fears losing money or worries about paperwork will not necessarily invest because of a slightly better tax rate. Confidence, simplicity and trust often matter more than tax incentives.

The real question

Europe wants households to become investors. But for many savers, the decision is not only about returns--it is about safety, trust and simplicity. They are parents saving for children, workers worried about retirement, young people trying to buy homes and families keeping money aside in case something goes wrong. For many of them, the bank deposit remains emotionally powerful because it feels stable and close.

The ECB’s take is that tax complexity reinforces that instinct. If Europe wants savers to take more risk and help finance the real economy, it must make the journey easier.

The money is there. The challenge is convincing households that investing it does not have to mean entering a tax maze.