* 0.6 pct fee for savers with over 1 mln eur
* ECB's low rates to help economy
* Central bank penalties for hoarding cash hit banks (Recasts, adds bullets and context)
By Joshua Franklin
ZURICH, March 22 (Reuters) - UBS, the world's biggest wealth manager, will impose a penalty charge on customers who park euros with the bank, one of the largest lenders to break what has been a taboo in finance as sub-zero interest rates bite.
The Swiss bank will introduce from May an annual fee of 0.6 percent on accounts with more than 1 million euros ($1.1 mln) in response to the European Central Bank's ultra-low rates, put in place to help a fragile economy but which hurt banks.
Low rates and an ECB penalty for hoarding cash have been politically divisive, coming in for particularly heavy criticism in Germany, because it turns much of the concept of saving for retirement on its head.
Commerzbank has even considered storing cash in vaults to avoid paying the central bank.
UBS already imposes a charge for large accounts held in Swiss francs by companies and some wealthy clients, because the Swiss National Bank also has such a charge.
"UBS will apply an individual deposit charge on large euro cash balances for European clients," a UBS spokesman said.
"This charge reflects the increasing costs seen across the industry of re-investing cash from deposits in money and capital markets, the continued extraordinarily low and negative interest rates in the euro area and increased liquidity regulations."
Money printing and a penalty charge for hoarding cash have been at the heart of attempts to reinvigorate the 19-country euro zone economy in the wake of the 2008-09 debt crisis.
Penalising banks for storing money makes holding deposits, traditionally the bedrock of any lender, more expensive, and this prompts some to steer savers towards fund products for which a fee can be charged.
The ECB imposes a so-called negative rate equivalent to 4 euros annually on each 1,000 euros that lenders deposit with the central bank. Banks in Sweden and Switzerland, outside the neighbouring euro zone, pay a similar charge.
It has squeezed bank profits. Last year marked a low ebb, according to a survey by Reuters of 20 large European banks conducted in mid-February.
While seven in that group saw net interest income fall during 2015, that number increased to 12 in 2016, with the average dip more than 7 percent. That was steeper than the roughly 5 percent slip on average in 2015.
$1 = 0.9281 euros Additional reporting by John Revill; editing by John O'Donnell and Louise Heavens