I'm currently in the midst of my "year off" between residency and fellowship, doing a hospitalist year in my hometown. I love it, for several reasons:
--Private practice medicine is dramatically different from residency. Everything down to the physical exam differs in really surprisingly specific ways, mainly because of Medicare regulations. There's also a lot more exposure to other specialties. I feel as if this has been a fourth (very well-paid) year of residency in terms of continuing my education. Learning how to be a useful consultant is something that doesn't really get taught in residency.
--It's going to be way easier to move and get settled for fellowship having had a year to save money and to prepare. My cross-country move is infinitely easier with money in the bank, and having saved a fair chunk of my salary this year for retirement will ease the sense of panic that accompanies not finishing training until one's mid-thirties.
--I've had a year to publish papers I didn't have time for in residency and to build administrative contacts that will help with job negotiation after fellowship. The salary differential between my hospitalist work and the pulm/ccm I'll be doing after fellowship is probably $150,000 but with some foresight you can make this up during an off year by convincing your employer to pay top dollar for you when you're done with fellowship.
--Time with family. Ten years of training from medical school through fellowship is a lot...to take a year sabbatical to live near family has been very worthwhile.
Caveats:
--If you're applying for fellowship, I would take no more than a year off. I would have had a very hard time applying this year without the institutional support of my residency. Letters of recommendation were hard enough to get when I was bothering the writers every day during rotations. From five states away it would be impossible.
--Make sure you can get in the year you apply. A round of interviews without a match is probably going to be repeated unless you do something big to remediate whatever kept you from ranking the first time...a hospitalist year will probably not be enough.
All in all I'm very glad I took an extra year. Not only for the off year, which has been incredibly useful from a family, educational, and financial perspective, but also because my application was much stronger as a senior resident. I matched much better than I would have had I applied as PGY2.