Sen. William Proxmire (D-Wis.), the third most senior member of the Senate, chairman of its banking committee and a maverick who reveled in the role of penny-pinching custodian of the public purse, announced yesterday that he will not seek a sixth term next year.

Describing a senator's life as "the best job in the world," he told reporters at the Wisconsin State Capitol in Madison that he was nonetheless abandoning it because he would be 79 when a new term ends.

"I think that's too old," he said later in a telephone interview. "Too many people stay too long . . . . It's better to leave early than stay too late."

The announcement by the 71-year-old lawmaker, whose career has been marked by crusades on issues ranging from government waste to arms control and human rights, was made on the 30th anniversary of his upset victory in a special election to succeed the late senator Joseph R. McCarthy (R-Wis.). {Related story on Page G1.}

It also marked the beginning of what could be one of the most hotly contested 1988 Senate races, giving Republicans a break in their otherwise uphill campaign to regain control of the Senate, which they lost to the Democrats last year. A dozen or more candidates from both parties are understood to be considering the race.

Proxmire was perhaps best known as creator of the "Golden Fleece Award" to call attention to excessive government spending. But he also made a mark in other areas, most recently including Senate ratification of the long-delayed antigenocide treaty, which he championed in daily speeches on the Senate floor for 19 years.

Asked yesterday what was his proudest accomplishment in the Senate, Proxmire said, "holding down spending." Asked what disappointed him most, he said, "not being more effective at it." He also listed passage of the truth-in-lending and foreign corrupt practices acts and defeat of the U.S. civilian supersonic transport as among the highlights of his career and said he regretted his early support of the Vietnam war. It was before a Proxmire subcommittee in 1969 that Air Force efficiency expert A. Ernest Fitzgerald disclosed a $2 billion cost overrun in the Lockheed C5 aircraft program.

The stubborn Proxmire lived by the same skinflint rules that he sought to impose on the government.

He refused to travel at government expense, returned more than $1 million to the Treasury by cutting the size of his staff and ran successful reelection campaigns on loose change. He reported spending $177.75 in 1976 and $145.10 in 1982, winning both elections by 2 to 1 or better.

If this made many senators green with envy, they turned other colors when Proxmire zeroed in on their pay and perquisites of office. When Proxmire blocked construction of a fancy new gymnasium in the Hart Senate Office Building several years ago, they retaliated by closing a smaller shower room that Proxmire used after running to work.

Proud of his personal as well as political eccentricities, Proxmire ran the four miles between his house and the Capitol every day, stood rather than sat at his desk, got a hair transplant, ate health food before it was fashionable and holds the Senate record for making roll-call votes: 21 years without missing one. He never takes vacations, returns to Wisconsin nearly every weekend and estimates that he shakes hands about 200,000 times a year.

As chairman of the Senate Banking, Housing and Urban Affairs Committee, Proxmire oversaw passage of the first major restructuring of banking laws in five years.

The second senator to announce his retirement this year, following Sen. Robert T. Stafford (R-Vt.), Proxmire is outranked in seniority only by Sens. John C. Stennis (D-Miss.), 86, and Strom Thurmond (R-S.C.), 84.