Best Budget Accommodations in Iceland

Welcome to the “Best Budget Accommodations in Iceland!”  Since Iceland is a rock pretty much in the middle of nowhere, it’s quite an expensive country.  Which is why I want to help save you money on hotels.  I’ll show you some charming bed & breakfasts, spacious hostels, & cozy hotels all over Iceland ~ that still have character & won’t break your budget! 

Author’s Note: Article updated as of December 2023.

Best Budget Accommodations in Iceland, Girl Who Travels the World

Ready to go to Iceland & see sights like this & save money on hotels?! Let’s go! (This shot taken on the southwestern-most tip of the Keflavik Peninsula).

In this post, we’ll travel around Iceland, hitting all the major sites.  In each spot, I’ll give you my top budget hotel options.  We’ll start in Keflavik (by the International Airport), then head south to super-popular Blue Lagoon.  From there, we’ll head to the Golden Circle & South Iceland, & a town called Vik.  Then we’ll fly up north, & I’ll introduce you to a great hostel in Akureyri! 

Finally, we’ll head back down south & hit Iceland’s quirky, must-see capital, Reykjavik. 

What does “Budget Accommodation” mean in Iceland?  It means that I’m trying to keep hotel prices around $55/night ~ which is a steal in Iceland.  In some places, this isn’t possible: so I’ll give the next best option.  

Best Budget Accommodations in Iceland

1. Keflavik (near International Airport)

When flying into Iceland from outside the country, there’s a 99% chance you’ll fly into Keflavik International Airport.  So, it’s likely you’ll stay a night here at the beginning or end of your trip.  And I’d recommend it. 

1) It will make your flight less stressful, & 2) It’s a quaint, charming town with cute restaurants & bars. 

My top budget hotel choice for Keflavik is Nupan Deluxe Guesthouse.  It’s family-run, charming, & very tidy (they do a fantastic job keeping it sparkling clean), & you can get a single, double, or triple room ($52-130+).  If you’re traveling solo, this is a great place to grab a single room & save some money!  Single rooms here aren’t huge (rooms in Iceland typically aren’t), but there are plenty of cute common areas where you can relax, chat, or grab free coffee.  And they have an outdoor hot tub where you can watch the Northern Lights! 

It’s also walk-able to Keflavik’s main street which has plenty of restaurants.

Best Budget Accommodations in Iceland, Nupan Guesthouse, Keflavik

Hot tub? Northern Lights? Check & check, at the Nupan Deluxe Guesthouse, in Keflavik.

Another Darling Guesthouse in Keflavik: BGB Guesthouse.  Rooms are stylish & simply decorated, clean & highly-rated.  A great value for your money in a central location!

Nearby, More Expensive Option = The Lighthouse Inn, located in Gardur (about 7 miles from Keflavik).  Why stay here?  It’s a darling hotel & reasonably priced ($117+) ~ but Gardur is also where the Northern Lights are seen…A LOT!!  Many “Northern Lights Tours” come here ~ so save money & stay here instead!

Search all hotels in Keflavik here

Best Budget Accommodations in Iceland, BGB Guesthouse, Keflavik

Cute, clean, stylish, & spacious. And $55/night. BGB Guesthouse, Keflavik.

2. Grindavik (near the Blue Lagoon)

The Blue Lagoon is one of the top destinations in Iceland with good reason: it’s absolutely stunning, & a perfect place to warm up after Iceland’s brutally cold weather.  And one of the best budget accommodations in Iceland just happens to be located 10 minutes from the Lagoon: in Grindavik

Lagafell Guesthouse ($54+) is adorable, charming, & run by a lovely family (we ended up chatting with the delightful owner for over an hour)!  Rooms are serene & white, with colorful accents ~ it feels very peaceful & warm after being out in the cold.  I stayed here both solo & with friends; they have single, double, & triple rooms. 

On our last night here, we caught the Northern Lights, about five minutes from the Guesthouse!

Best Budget Accommodations in Iceland

3. Selfoss (by the Golden Circle)  

The Golden Circle is one of the most popular drives in Iceland ~ & Selfoss is a good place to stay nearby; Reykjavik is over two hours away.  It’s challenging to find budget accommodations here, but Lambastadir Guesthouse ($104+) is a quaint, cozy option that won’t break the bank.  It’s located in the countryside ~ meaning you’ll have a better chance of seeing the Northern Lights here than in town (less light pollution)! 

Owners are charming, & there’s a hot tub & sauna to relax in, plus free breakfast & Wi-Fi.  And Selfoss is just four miles away.

Best Budget Accommodations in Iceland, Lambastadir, Selfoss

Enjoy the countryside, a hot tub, & the Northern Lights at Lambastadir Guesthouse in Selfoss.

4. Vik (Southern Iceland, by Skogafoss Waterfall)

We tried to find budget accommodations in Vik ~ but the best we could do was around $100/night, at Hotel Katla.  Hotel Katla has been updated since we’ve been there: rooms are sleek & modern, with very comfortable beds, & some with views.  There’s also an outdoor hot tub & large restaurant & bar on-property.  

For a Fancier Option in Vik: Try Hotel Vik ($170+).  It’s a little more chic than Hotel Katla, with beautifully-appointed rooms & gorgeous views.  Common areas are stylish, decorated in light blue & neutral tones.  This hotel is part of an upscale hotel chain, with other properties in Reykjavik, Selfoss, & Keflavik.

Best Budget Accommodations in Iceland

5. Akureyri (Northern Iceland, by Godafoss Waterfall)

Hotels get a bit cheaper when you head north.  And here you’ll find one of my absolute favorite budget accommodations in Iceland: Akureyri Backpacker’s Hostel ($22+).  This place is a FIND!!  It was the largest room I had in Iceland (in a 4-person, female dorm), & I had it to myself for three nights!  There’s an adorable restaurant & cafe downstairs that’s great to work or hang out in, with great food!  Showers are clean & located downstairs, but each floor has its own large bathroom with sinks & toilets. 

All ages were staying at this hostel ~ not just 20-something’s. 

Best Budget Accommodations in Iceland, Akureyri Backpackers

This cozy bar & a good pint await you in Northern Iceland, at Akureyri Backpackers Hostel. $22+/night!

Akureyri was my favorite town in Iceland ~ it’s charming, scenic, & filled with great restaurants, coffee shops, & bars.  It’s a great place to spend a few days. 

Just Can’t Do a Hostel?  I get it.  Try the (un-pronounceable) Skjaldarvik Guest House ($70+).  It’s charming, stylish, & highly-rated ~ another great base for exploring all the amazing sites in Northern Iceland.

Search all hotels in Akureyri here

6. Reykjavik (Iceland’s Capital)

No trip to Iceland is complete without a stop in Reykjavik, the nation’s capital & largest city.  Luckily, we had hotel points ~ so we stayed in some of the city’s most luxurious accommodations: Hilton Reykjavik & the Radisson Blu 1919 Hotel (which has an amazing breakfast buffet)!  But there are lots of good budget options here. 

To keep it under $100/night, try one of Reykjavik’s fun & funky hostels!  

The most highly-rated (even raved about) hostel in Reykjavik is Kex Hostel ($30-118+).  It’s sooo chic & cute, you’ll think you’re at a boutique hotel.  And the cool thing is: you can choose to be in a dorm or private room.  If you’re traveling in a group & want more space, a private room is a great option.  Kex has good vibes, a happening bar, & near-perfect location just off Laugavegur Street ~ the main street in town.

Best Budget Accommodations In Iceland, Kex Hostel, Reykjavik

Is this a darling hotel? Nope. It’s Kex Hostel in Reykjavik, Iceland.

Other Budget-Friendly Hostels in Reykjavik: Loft HI Hostel ($56+).  Located directly on Laugavegur Street (which makes it a little noisier than Kex), this stylish hostel has great common areas & a gorgeous rooftop terrace.  Rooms are clean, spacious, & colorful.  I’d stay here for the rooftop bar alone!

Best Budget Hotels in Iceland

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Best Budget Hotels in Iceland, Girl Who Travels the World

Where to Stay on a Budget in Iceland, Girl Who Travels the World

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