Iceland has a reputation for being one of the most expensive travel destinations in the world. From accommodation and rental cars to dining and activities, costs can quickly add up. But here’s the good news: exploring Iceland doesn’t have to break your budget.
With the right planning and a few smart strategies, you can experience Iceland’s breathtaking landscapes, unique culture, and unforgettable adventures while saving money along the way. From cheap local food options to free natural attractions and hidden budget hacks, this guide will help you make the most of your trip without overspending.
Why Iceland Is Expensive — And How to Plan Around It
Before diving into budget tips, it helps to understand why Iceland tends to be costly:
- Most goods are imported, increasing prices
- High wages and living standards
- Strong focus on sustainability and local production
- Seasonal demand from tourism
The key to traveling Iceland on a budget is prioritizing spending. Once major expenses like flights, accommodation, and transportation are planned, you can significantly reduce daily costs through smart food choices, local habits, and simple planning.
Save Money from Day One: Buying Alcohol Duty-Free
Alcohol taxes in Iceland are among the highest in Europe, making drinks at bars or liquor stores quite expensive. One of the easiest ways to save money starts right after landing.
At Keflavík International Airport, duty-free shops offer significantly lower prices compared to stores across the country.
Budget tip:
Purchase alcohol at the airport if you plan to enjoy drinks during your trip.
Check duty-free allowance limits before arrival to maximize savings.
Drink Iceland’s Free Tap Water (Yes — It’s Amazing)
One of the easiest ways to save money in Iceland is simply avoiding bottled water.
Icelandic tap water, known locally as kranavatn, is incredibly clean and naturally filtered through lava rock and underground springs. Many locals consider it among the best-tasting tap water in the world.
Bring a reusable water bottle and refill it everywhere:
- Hotels and guesthouses
- Restaurants and cafés
- Public restrooms and campsites
This small habit saves money daily and reduces plastic waste.
Happy Hour Deals in Reykjavík: Enjoy Icelandic Bars for Less
Reykjavík has a vibrant craft beer and nightlife scene, but regular drink prices can be high. Luckily, many bars offer happy hour deals with significantly discounted drinks.
To find the best offers:
- Use local apps like Appy Hour to track current deals
- Visit bars earlier in the evening
- Explore smaller local pubs instead of tourist-heavy venues
Happy hour hopping allows you to experience Iceland’s social scene without overspending.
Choose Accommodation With Breakfast Included
Booking accommodation that includes breakfast can be a major budget saver.
A buffet breakfast helps you:
- Avoid buying expensive café meals in the morning
- Start your day with enough energy for long drives or hikes
- Try traditional Icelandic foods you might not otherwise order
Many travelers also prepare simple packed lunches from breakfast leftovers (where allowed), helping reduce daily food costs even further.
Eat Smart: Icelandic Lunch Specials (Hádegis Matseðill)
If you want to enjoy Iceland’s excellent restaurants without paying full dinner prices, take advantage of local lunch menus.
Many restaurants and gas stations offer daily lunch specials that include:
- Fish or soup of the day
- Bread and butter
- Coffee or tea
Lunch menus often cost half the price of dinner while offering generous portions and authentic Icelandic flavors.
Vegetarian and vegan options are widely available.
Budget Grocery Shopping in Iceland
Cooking some of your own meals is one of the easiest ways to reduce expenses during your trip.
Affordable grocery chains include:
- Bónus (pink pig logo)
- Krónan (smiling coin logo)
Popular budget-friendly Icelandic snacks:
- Skyr (high-protein Icelandic yogurt)
- Flatbrauð (traditional flatbread)
- Icelandic cheese
- Fresh vegetables grown in geothermal greenhouses
- Kleinur (traditional pastry)
Shopping locally also lets you explore Icelandic food culture beyond restaurants.
Try the Famous Icelandic Hot Dog (Budget Street Food Favorite)
The Icelandic hot dog — or pylsa — is legendary among travelers.
Typically topped with:
- Sweet brown mustard
- Ketchup
- Remoulade
- Raw onions and crispy fried onions
Order it “eina með öllu” (with everything).
At around $5 USD, it’s one of the cheapest and most iconic meals in Iceland, available at gas stations, kiosks, and street stands across the country.
Cook Your Own Meals: Choose Accommodation With a Kitchen
Guesthouses, cabins, hostels, and some hotels offer shared kitchens or kitchenettes.
Cooking your own dinners:
- Reduces restaurant expenses
- Allows you to try Icelandic ingredients
- Gives flexibility during long road trips
Pro tip: Bring small travel spice containers to make simple meals more flavorful.
Save on Fuel While Driving Iceland’s Ring Road
Driving the Ring Road is one of the best ways to explore Iceland, but fuel costs can add up quickly.
Budget strategies:
- Compare fuel prices using local apps or websites
- Use discount keys provided by rental car companies
- Fill up in larger towns where prices may be lower
Even small savings per liter can make a difference over long distances.
Visit Local Swimming Pools Instead of Expensive Spas
Luxury geothermal spas are famous but can be expensive if visited frequently.
Instead, try Iceland’s local swimming pools:
- Found in nearly every town
- Heated by geothermal energy
- Usually include hot tubs, saunas, and steam rooms
Entry fees are often around $8–10 USD and provide a truly local cultural experience.
Enjoy Iceland’s Best Free Attractions
One of the biggest advantages of traveling in Iceland is that many natural wonders are completely free.
You can explore:
- Waterfalls
- Volcanoes
- Mountains
- Black sand beaches
- Scenic viewpoints
While some parking areas charge small fees, the landscapes themselves remain open and accessible.
In Iceland, some of the most unforgettable experiences don’t cost anything at all.
Final Thoughts: Experiencing Iceland Without Overspending
Traveling Iceland on a budget is absolutely possible with a little planning and flexibility. By embracing local habits — drinking tap water, shopping at grocery stores, enjoying lunch specials, and exploring free natural attractions — you can significantly reduce expenses while deepening your travel experience.
Iceland’s beauty doesn’t require luxury spending. Often, the most memorable moments come from simple experiences: watching waterfalls, soaking in a local pool, or sharing a hot dog at a roadside stand.
FAQs About Traveling Iceland on a Budget
Is Iceland really expensive for tourists?
Yes, compared to many destinations, Iceland has higher costs for food, accommodation, and transportation. However, smart planning can reduce expenses significantly.
What is the cheapest way to eat in Iceland?
Grocery shopping, lunch specials, and Icelandic hot dogs are among the most affordable food options.
Is tap water safe to drink in Iceland?
Yes. Icelandic tap water is extremely clean, safe, and widely considered some of the best in the world.
Are there free attractions in Iceland?
Yes. Most natural attractions like waterfalls, mountains, and landscapes are free to visit.
How can I save money on activities?
Visit local swimming pools instead of expensive spas, explore free nature spots, and plan self-guided adventures.