ZURICH--UBS AG (UBS) Tuesday said it will charge fees to bank clients holding Swiss franc cash clearing accounts from Dec. 21, and has urged customers to keep franc balances as low as possible.

Switzerland's largest bank by market value said that due to the "prevailing market conditions" it has modified its policy of charging only selected clients since August 2011, and will now include all its third-party bank customers.

"The charge applied will be communicated individually to clients within the next few days, and we encourage customers to keep their Swiss franc balances as low as possible," UBS said in a statement on the Swift interbank payment system.

Earlier this month cross-town rival Credit Suisse Group AG (CS) said it would begin charging interest to other banks for holding their franc deposits.

The moves come as banks struggle to cope with surging demand for the franc, which has climbed in value as global investors seek safety from the ongoing debt crisis in the euro zone. State Street Corp. (STT) in October levied charges on its Swiss franc and Danish krone deposit accounts.

The franc dipped briefly to its weakest level against the euro in five days after the Swiss bank it would charge fees for deposits in francs. The euro traded as high as CHF1.2108 before settling back towards the CHF1.2089 area.

Market participants said the sharp reaction was partly due to poor trading conditions at the start of European trading hours.

"Liquidity is not great and the market is struggling to handle this morning's higher than average turnover," said Citigroup in a note.

-Eva Szalay in London contributed to this article.

Write to Neil MacLucas at neil.maclucas@dowjones.com

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