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How to save for a gap year you’ll never forget

classic shot of the Taj MahalA gap year spent working or travelling overseas offers school-leavers or graduates the perfect opportunity to enjoy sun, sea, sand and adventure, before going to university or settling down to the world of work. So whether you fancy an extended holiday or a job volunteering for community or environmental projects in developing countries, the experience will be both unforgettable and could enhance your employment prospects when you return.

Start saving early

Before you start packing your rucksack, you need to remember that globe-trotting does not come cheap; fail to budget and your gap year could soon end up running into thousands of pounds. The key to a successful extended trip is forward planning – working out how you're going to finance it is just as important as deciding where to go.

Draw up a budget

Think carefully about your finances, and draw up a list of all the big expenses you might encounter, such as transport, food and accommodation. Also take the time to research the local cost of living – a good starting point is Lonely Planet.

Build up a cash reserve

While you may like the idea of working your way around the world, it may also be worth spending some time working here in the UK before you go. This will enable you to build up a cash reserve which could be held in a low-risk savings account paying a high rate of interest.

Where should I stash my cash?

A good starting point is a mini cash individual savings account (ISA) into which you can currently save up to £3,600 a year with no tax on interest (rising to £5,100 in April 2010).

Manchester building society is offering one of the “best buys” at the moment – paying 2.75% with no bonus on its Premier Instant Isa - although this does require a minimum balance of £1,000. For smaller balances, Standard Life is paying 2.65% on its Direct Access Isa on balances of just £1.

You can find great deals on ISAs from some of the biggest names in the market here.

Instant access account

As well as an ISA, you should have money squirreled away in an instant-access account. Birmingham Midshires is currently paying 3.15% on its Telephone Extra account on just £1, and Alliance and Leicester is paying the same rate on its Online Saver issue 5 – but beware that both these accounts include a 2.65% bonus which will drop away after a year.

Alternatively, if you can afford to lock your money away for 12 months, the Post Office is paying 3.85% on its one-year Growth Bond on a minimum of £500.

Stick to your budget

Having worked hard to build up your travelling fund, one of the most important tasks is budgeting carefully while you're away. This will mean striking a balance between making the most of that once-in-a-lifetime experience whilst being careful not to pile up huge debts that you can't handle on your return. That said, provided you keep tabs on your cash flow, there's nothing to stop you having the time of your life.

*Saving figures correct as 14/7/2009

Curious as to how much you could save with different interest rates? Our savings calculator tool does exactly that. Try it out for yourself:

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