Holy, holiness
That word “saints” has an Old Testament background. The Lord calls Israel His “holy nation” (Ex 19:6). They are a people “holy to the LORD,” set apart to belong to Him. They were not all sinless people. In fact, many of them were punished for their sins of unbelief and rebellion.
To be holy means that you have access to God – sanctuary access. A holy person is one who is allowed to draw near to God. God is holy meaning that each member of the Trinity has free access each other member of the Trinity.
The Bible it talks about the holy vessels of the temple. These are objects, cups and candlesticks that are brought into the holy place, they are brought close to God for special service. Israel is a holy nation because of all the nations she has been brought nearer to God than all the other nations to do God’s purpose.
In Israel there are degrees of holiness in the covenant. The priests are holier than the Israelites not because they are less sinful, but they can be brought nearer to God than the common Israelites. They can enter the holy place and eat the showbread and perform the duties of lighting the candles and so on. Likewise the High Priest is holier than the priests because he can enter the most holy place, although only once a year and with blood.
Every Christian is holy (i.e., a saint) because he is able to approach God. And he approaches God for the purpose of service. The words "holy" and "holiness" refers to something or someone who is dedicated to God for His purpose.
Over time, the words have come to mean, erroneously, "godly" or "sinless." Thus we hear the derisive expression, "holier than thou" to mean someone who flaunts the fact that he is more godly than another. However, in every instance of the words "holy" and "holiness" in the NT or LXX, they refer to something or someone consecrated for a godly purpose, not someone who is sinless, godly, or perfect.
Likewise if a person is holy, he is dedicated to God. His moral character is not addressed. He is sanctified in that he has access to God and has been set apart to do what God wants.
This concept explains 1Cor 7:14 where the unbelieving spouse is sanctified (made holy) by the believing partner. The unbelieving spouse is not made godly or sinless, nor is that spouse one of the elect. Instead he/she enjoys the blessings of the believing partner.
When Moses led the people out of Egypt, there were both believers and unbelievers among them. The unbelievers enjoyed deliverance from Pharaoh and from the ravages of the Red Sea. They benefitted from the provision of manna and victiories. But those who did not believe died and did not enter the promised land. They were within the covenant of blessing, but not among the elect for salvation.