HostelWorld.com is the first place I go to book hostels online. The site has a large selection of available hostels with an easy to navigate result listing that includes availability, price, and a feedback score. I have booked hostels in the US and Europe on this site, and I have always found the hostel had my booking when I arrived. While not totally comprehensive, many smaller hostels are available for reservation. One of the nicest things about HostelWorld is the lack of bogus listings for hotels that clutter up the hostel results like on other sites. If I wanted to book a cheap hotel there are plenty of other sites that can provide that service.
If I find that a hostel on this site doesn't show available beds, I have in the past called the hostel directly and booked over the phone. Additionally, I have booked beds directly through a hostel's website or over email when a hostel is not available on HostelWorld. So, there are a number of options available for making reservations besides this site. While many people have in the past (including myself) just shown up at a hostel without a reservation, I wouldn't suggest it since I have been at many hostels where people are turned away. (usually at some ridiculous hour in the morning) The peace-of-mind of a reservation can be nice especially at the beginning of a trip to Europe when you are tired from the jetlag and just want to get some sleep.
One of the most annoying problems with hostel reservations is the inability to cancel at the last minute. Like any other frequent traveler, I have been burned by the canceled reservation charge. Usually amounting to one nights stay, this can be an annoying charge, but the opposite scenario of having to stay at a hotel when no beds are available can be even more expensive. The one time I did have to cancel a reservation the reception guy offered me a free beer as a consolation, which was a kind gesture even though I was out $25. On the other hand, when I arrived in Milan with out a reservation, I ended up having to take a night train to Rome packed on fold out seats with 4 other people. I wouldn't recommend it to my worst enemy.
Note that hostelworld usually charges a 10% deposit fee, so it is good to bring a copy of your receipt to the hostel so you are not charged the 10% again when you check in. I am sure I have been burned by this before, but couldn't prove it because I didn't have the booking receipt with me. Some hostels will charge a few extra dollars if you are not a member of HI/AYH, which is not usually represented in the HostelWorld bill. I have tried over the years to get a membership by collecting the membership stickers often available at European hostels, but usually end up going to several hostels that have run out or are unaffiliated before the stickers expire.
Note also that hostelworld charges a booking fee of $2 unless you are a gold member, which costs $10 for a year-long membership. I received a gold membership a few years ago, and have been booking hostels ever since.
HostelWorld.com now contains many more features including social networking, frequent travel points, etc., but I haven't used many of these. However, I did notice they have a blogger named Colm who travels around the world and writes about his experiences. That's a sweet gig.
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