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AWS Savings Plans vs. Reserved Instances: How To Choose the Best Fit

Originally Published October, 2024

By:

Steven O'Dwyer

AWS Savings Plan vs. Reserved Instances: Choosing the Right Cost-Saving Strategy

AWS (Amazon Web Services) offers 240+ cloud services that are billed On Demand by default. While this pricing model offers great flexibility, the costs can quickly add up — especially if you don’t keep track of cloud waste

However, AWS also provides alternative models that offer discounts up to 72% in comparison to the on-demand rates. Two prime examples of such discount plans are Savings Plans and Reserved Instances. Both offer significant savings, but they’re often so similar that it can be challenging to understand the real differences and decide which option is the best fit for your organization. 

In this blog, we’ll break down the key distinctions of AWS Savings Plans vs. Reserved Instances, and how you can choose the best fit. 

What Are AWS Savings Plans?

AWS Savings Plans are flexible pricing models that offer significant discounts (up to 72%) compared to On-Demand rates in exchange for a commitment to a consistent usage level (measured in $/hour) over a one- or three-year term.

You choose your hourly spending amount, and any compute usage, across all regions, up to that amount is available at the discounted rate. The usage costs remain fixed through the plan term regardless of any changes to the amount of hourly commitment. With these plans, you can save up to 72% on AWS workloads.

How are Savings Plans applied?

AWS Savings Plans automatically apply to your eligible usage, prioritizing the highest savings across your workloads first. Any usage beyond your committed hourly amount is billed at standard On-Demand rates. AWS also updated its return policy to include a seven-day return window. During this period, customers can correct any commitment purchase errors without losing their discounts.

For a detailed overview of AWS Savings Plans, explore our blog: AWS Savings Plans.

Types of AWS Savings Plans

AWS has three types of Savings Plans: Compute, EC2, and Amazon SageMaker. Here’s a closer look at each one:

Compute Savings Plans

Compute Savings Plans are one of the most flexible discount instruments offered by AWS. They can help cut cloud costs by up to 66%. Compute Savings Plans provide discounts on a wide range of AWS compute services, including Amazon Elastic Compute Cloud (EC2), AWS Fargate, AWS Lambda, as well as Dedicated Hosts and On-Demand Capacity Reservations. It also allows flexibility across various instance families, operating systems, and regions, making it an ideal solution for those that require multiple or changing instance types. 

Compute Savings Plans offer three payment options: an All Upfront plan, a Partial Upfront plan, and a No Upfront plan. The All Upfront and Partial Upfront options require an initial payment, with the All Upfront offering the maximum savings. In contrast, the No Upfront option doesn’t require any upfront payment but comes with a slightly higher hourly rate compared to the other two options.

EC2 Instance Savings Plans

EC2 Instance Savings Plan is a cost-saving model tailored specifically for Amazon EC2 instances. They provide discounts of up to 72% on EC2 Instances but offer a lot less flexibility in comparison to Compute Savings Plans. 

Purchasing an EC2 Instance Savings Plan requires you to commit to a specific instance family (such as M or C), a specific generation (such as 5 or 6), as well as a specific Region (such as Northern Virginia (us-east-1), or Oregon (us-west-2).

Unlike Compute Savings Plans, EC2 Instance Savings Plans don’t provide flexibility across regions, instance types, or instance generations. They also don’t cover other services such as Fargate or Lambda.

Amazon SageMaker Savings Plans

Amazon SageMaker Savings Plans are flexible pricing models designed specifically for SageMaker, AWS’s fully managed machine learning service. They offer up to 64% savings on On-Demand rates in exchange for a commitment to a consistent usage level (measured in $/hour) over a 1- or 3-year term. 

These plans automatically apply to eligible instances within SageMaker regardless of instance family, size, AZ, AWS Region, or components:

  • Studio Notebook
  • On-Demand Notebook
  • Processing
  • Data Wrangler
  • Training
  • Real-Time Inference
  • Batch Transform 

What Are AWS Reserved Instances?

AWS Reserved Instances are pricing models that offer a discounted rate (up to 72%) in exchange for a commitment to a specific Instance type for one or three years. With AWS Reserved Instances, you have to commit to a specific EC2 instance type (family and generation), operating system, region, and term length. 

For Non-Linux OS types, the commitment is also made to a specific instance size. You’ll then have the option to choose from all upfront (AURI), partial upfront (PURI), or no upfront payments (NURI), and the more you pay upfront, the more of a discount you can expect to receive.

While RIs are most commonly associated with EC2 instances, they are also available for other AWS services like RDS, ElastiCache, OpenSearch, Redshift, and MemoryDB. However, these service-specific RIs tend to be less flexible and do not support marketplace trading, unlike EC2 RIs.

Types of Reserved Instances Plans

Here’s what you need to know about the two types of Reserved Instances plans AWS offers:

Standard Reserved Instances (SRI)

Standard Reserved Instances (SRIs) offer savings up to 72% but with very restricted terms as you are required to commit to a specific instance type, region, tenancy, and operating system for a 1- or 3-year term. 

These reservations provide the most savings when workloads have predictable, steady-state usage. While they offer cost predictability and savings, they lack the flexibility of being applied to other instance types or regions, unlike AWS Savings Plans.

Standard Reserved Instances don’t allow exchanging, but you can modify the Availability Zone, Instance size (within the same family), and scope (Regional vs AZ-specific). Though less flexible than Convertible Reserved Instances, SRIs provide higher discounts of up to 72% — and you can buy or sell them in the Reserved Instance Marketplace (*terms may apply). 

Convertible Reserved Instances (CRIs)

Convertible Reserved Instances are the most flexible of the two types of Reserved Instances plans. These Instances can be exchanged for other CRIs at no additional charge. Through the Convertible RI exchange process, you’ll have the option to change the instance attributes within a particular region so long as the resulting exchange is equal to or greater than the remaining value of the original CRI(s). There’s no limit to the number of times you can exchange the Instances, and you can save up to 54% with CRIs

CRIs offer more flexibility because you can exchange them for Instances of a different Instance family, operating system, scope, platform, or tenancy. This makes it easy to modify Instances to meet an organization’s increasing or decreasing workloads. 

But, AWS doesn’t allow the buying or selling of convertible reserved Instances in the Reserved Instance Marketplace like Standard Reserved Instances. 

Similarities Between Savings Plans and Reserved Instances

The following are some similarities between Savings Plans and Reserved Instances that make it challenging to differentiate between the two pricing models:

  • Billing: Both are billed by the hour, reducing your effective hourly or per-use cost.
  • Payment options: Both offer three payment options: All Upfront, Partial Upfront, and No Upfront. 
  • Usage commitment: Both have commitment terms of one or three years and when you exceed this hourly spend commitment during the contract period, standard On-Demand rates apply. Likewise, if your usage drops below the committed amount, you will pay the committed hourly rate even if not utilized. 
  • Cost optimization: Both work by committing to use AWS services for extended periods in exchange for discounted rates. 

Key Differences Between Savings Plans and Reserved Instances

Let’s take a look at how these pricing models compare across several key considerations:

Application 

AWS will apply all Reserved Instance Discounts towards eligible compute usage before allocating discounts from the savings plans.

For Reserved Instances, the discounts apply to the specific Instance types for which you have reserved coverage. While you can change Instances and continue to benefit from the discounts, you’re restricted to Instances of the same configuration. 

When you purchase Savings Plans, the discounts apply automatically to your usage across the services tied to your committed spend. When your usage exceeds the commitment amount, the billing switches to standard On-Demand rates. 

Flexibility and Instance coverage

Savings Plans have broader coverage, with Compute Savings Plans offering discounts on EC2, Lambda, and Fargate. They also cover Instances of any family, size, region, OS, and tenancy. This flexibility means you can modify your AWS compute usage and still benefit from cost savings as long as you’re within the commitment amount. 

Reserved Instances are more restrictive because although you can change the Instances, it’s a more complex process that requires manual modification. Also, the Instances must be of the same region and often the same Availability Zone. Otherwise, the discounts will no longer apply, and you must purchase new RIs. 

Commitment growth restrictions

With Savings Plans, you can’t grow coverage on the original expiration date if your usage exceeds the original commitment. You must purchase additional full-term dollar-per-hour commitments. 

Standard Reserved Instances also have commitment growth restrictions that require you to purchase additional RIs. However, you have the option of purchasing full-term SRIs using the EC2 Console or partial-term ones on the Reserved Instances Marketplace.

Convertible RIs allow commitment growth on the original expiration date without new commitments through the CRI exchange process.

Capacity reservation and instance utilization

A Capacity Reservation guarantees you can launch specific instances within a region’s availability zone. 

Savings Plans don’t provide reserved capacity, so there’s no guarantee that the committed resources will always be available especially in the times of scarcity.

Standard Reserved Instances (not Convertible RIs) offer capacity reservations. However, to ensure the availability of capacity reservation, you must purchase the SRIs assigned to the specific Availability Zone. Otherwise, capacity is not reserved for the Regional scope. 

The Standard RIs with zonal scope makes them a better choice for applications with performance requirements such as low latency among a region’s availability zones. 

You can purchase On-Demand Capacity Reservations (ODCRs) independently of RIs or Savings Plans to ensure access to specific Instances or locations. Compute Savings Plans and Regional Reserved instances can be used for discounting of ODCRs, allowing for both the benefits of capacity and discounts without the commitment lock-in.

Selling and exchanging

You can sell excess Standard RIs or buy additional ones of varying term lengths and pricing options through the AWS Reserved Instance Marketplace. 

To sell, you must register as a seller and list the Instances for potential buyers to find. AWS charges a service fee of 12% of the upfront portion of the selling price for each Reserved Instance you sell. There is no service fee when selling No Upfront SRIs. Some limitations and restrictions apply to the selling of Standard RIs. If you buy or sell RIs, AWS processes the transaction, transfers ownership, and transfers any proceeds from the sale. 

You can exchange Convertible RIs to increase your commitment without restarting your contract. Convertible RIs can also be exchanged to make the coverage apply to different usage types throughout the term of the commitment. Be sure to review the specific terms and conditions for policy changes, availability, and other limitations or requirements for making the exchange.

On the other hand, outside of the initial 7-day window after purchase, Savings Plans are immutable: Once you purchase them, you’re stuck with them for the entire term. You can’t sell or purchase them on the AWS Marketplace. 

Discounts offered

EC2 Savings Plans and Standard Reserved Instances offer similar discounts that can go as high as 72%. The discounts are tied to a particular usage, and maximizing savings requires committing to specific Instance types and regions.

Compute Savings Plans (CSPs) can save you 66%, and Convertible RIs 31% to 54% for one-year and three-year terms, respectively. 

CSP discounts depend more on the payment option you choose. For example, All Upfront payments save more than Partial Upfront or No Upfront payments. Optimizing savings with CRIs and CSPs requires committing to the right terms and payment options. 

AWS Savings Plans vs. Reserved Instances: Which Should I Use?

There isn’t a single answer to which is better for your business. Rather, RIs and Savings Plans are complementary, and you’ll often find that to optimize your AWS spend, you must use a combination of pricing models that you must continually adapt and fine-tune to match varying needs. 

However, there are a few instances where one is more ideal than the other:

When are Savings Plans ideal?

Savings Plans work best if you have a dynamic workload requiring regular adjusting to match changing needs or workloads that require multiple Instances. That’s because EC2 Savings Plans cover a wide range of cloud computing services without committing to specific Instance attributes and are easy to work with since they’re applied automatically. 

When are Reserved Instances ideal?

Reserved Instances are ideal for stable workloads with predictable usage patterns that allow committing to the same Instance configurations. That way, you can maximize savings for specific Instance types with known usage forecasts. 

To ensure engineering freedom and the ability to freely use different instance types, generations, and usage patterns, ProsperOps focuses on leveraging Convertible RIs and automatically applies them, so businesses can enjoy increased flexibility and savings of RIs in a way that has less commitment lock-in risk than Savings Plans. CRIs are only “easier” when you have automation to manage them for you. For CSPs, AWS does all of the discount application logic. 

Optimize Your AWS Spending With ProsperOps

Choosing between AWS Savings Plans and Reserved Instances is crucial for a solid AWS cost optimization strategy. But that’s just one of many decisions you must make to effectively manage your AWS spend. There’s always an endless task list waiting for you in the usage optimization process. 

That’s why you need a FinOps platform that can automate complex and time-consuming rate optimization tasks and deliver better outcomes. 

ProsperOps delivers cloud savings-as-a-service, automatically blending discount instruments to maximize your savings while lowering commitment risk. Using ProsperOps’ autonomous discount management, we optimize the hyperscaler’s native discount instruments to reduce your cloud spend and place you in the 98th percentile of FinOps teams.

Using machine learning algorithms and advanced data analytics, ProsperOps can continuously analyze your company’s AWS usage patterns to identify inefficiencies and autonomously manage the commitment-based discounts based on the purchase option (all upfront, partial upfront, or no upfront) or term (one or three years) you select. 

This hands-free approach to AWS cost optimization can save your team valuable time while ensuring automation continually optimizes your AWS discounts for maximum cost savings.

Schedule a live demo to learn how you can return the most savings to your bottom line with our automated FinOps platform.

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