Syed Saif AWS Azure Cloud Expert

  Syed Saif   Syed Saif Linkedin Profile | 22 July 2021 | Comparison of AWS Reserved Instances and Savings Plans.

Amazon Reserved Instances (RI) and Savings Plans help to reduce your AWS Server costs. Discounts on AWS EC2 Server instance pricing range from 27% to 40% for 1 year commitment. If you commit for 3 years then the discount on pricing is upto 60%.

In this page I walk you through the below.
1. Important points to know before you purchase AWS Reserved Instances or Savings Plans.
2. Comparison table of AWS EC2 Reserved Instances pricing options and discounts.
3. Comparison table of AWS Savings Plans options and discounts.
4. Reserved Instances. How the discounts are applied – An example.
5. Savings Plans. An example showing how it works.
6. Which one is the best ? Amazon Reserved Instances or Savings Plans.

1.Important points to know before you purchase Reserved Instances or Savings Plans.

  • You are committing to use the AWS Server or EC2 instance for one year(or 3 years).
  • If you terminate or stop the AWS EC2 instance anytime after purchase(say after 1 month), you will continue to pay the charges for the remaining 11 months. If you opted for full upfront payment then you don’t get back the upfront amount paid.
  • In AWS EC2 Savings plans, if your usage reduces below the committed amount you will still be billed for the committed amount.
  • Amazon Reserved Instances or Savings plans discounts apply for the compute(EC2 instance pricing) charges only. It is not applicable for pricing of disks or S3 or other services/resources.
  • Reserved Instances and Savings plans are commercial offerings and do not impact the EC2 Servers you run. AWS calculates your actual EC2 instance usage hours, applies discount on the charges as per Reserved Instances or Savings Plans purchased and bills you.

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2. AWS EC2 Reserved Instances Options and Discounts
Standard Reserved Instances Convertible Reserved Instances
No Upfront Partial Upfront Full Upfront No Upfront Partial Upfront Full Upfront
37% 40% 41% 27% 30% 31%

3. AWS EC2 Savings Plans Options and Discounts
Compute Savings Plans EC2 Instance Savings Plans
No Upfront Partial Upfront Full Upfront No Upfront Partial Upfront Full Upfront
26% 30% 31% 37% 40% 41%
Note: 1 year commitment period is considered. I have taken EC2 instance m5.4xlarge(Asia-Pacific Mumbai Region) pricing to work out the discounts. Actual discounts may vary by 1% to 3% points based on type of instance.
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4. Reserved Instances – How the discounts are applied ?
Let’s say you use a m5.4xlarge EC2 instance running Linux.
Monthly charges incurred will be $582 without Reserved Instance purchase.
You purchase a Reserved Instance m5.4xlarge with 1 year commitment and no upfront payment.
Your monthly charges will be $367 (37% discount on $582)).
You will be paying this amount $367 for the next 12 months.

Partial upfront : You pay part of the annual AWS EC2 instance charges in advance when you purchase RI. Balance you pay on a monthly basis.Let’s again consider the same m5.4xlarge.
Per month charge is $349 (after 40% discount on $582. See table above for discount rate) .
For 12 months it works out to $4188 ($349×12). You will pay 50% ($2094) upfront when you purchase Reserved Instance.
Balance $2094 you will pay in 12 instalments of each $174.50

Full upfront : Once again consider the same m5.4xlarge.
Per month charge is $343 (after 41% discount on $582. See table above for discount rate) .
For 12 months it works out to $4116($343×12).You pay the full annual AWS EC2 instance charges of $4116 when you purchase RI.
From next month you don’t pay any charges at all.

A partial or full upfront payment option is not worth it unless you have excess funds or cash rich. Since it provides extra 3% to 4% only.

Standard Reserved Instances : You can change the EC2 server instance size only and not family type. You can do this for Linux EC2 instances only and not for Windows Server EC2 instances. E.g. you can upgrade m5.4xlarge to m5.8xlarge. You cannot change it to a different EC2 instance family like c5.4xlarge.

If you change AWS EC2 instance family type after purchasing you will be billed for two EC2 Server instances. You pay the Reserved Instances charges as well as full charges of the new upgraded instance.

Convertible Reserved Instances: You can change EC2 instance size as well as EC2 instance family type.

My suggestion : Changes to EC2 Server instance family type are rarely required. Hence I suggest you opt for Standard Reserved Instances to avail the highest possible discount. Term to be 1 year. 3 years is too long a period to have visibility of usage for majority of the cases.

5. Savings Plans:
As mentioned above, AWS Savings plans are another pricing model from AWS. Savings Plans provide options to reduce your EC2 instance pricing. Like Amazon Reserved Instances , Savings Plans discounts are also only applicable for EC2 (compute) and not for disks, bandwidth or other resources/services.

In AWS Savings Plans you make hourly usage amount commitments. For e.g. you commit to using $2 per hour of EC2 instances. This can be across any number of EC2 instances and different instance types also.

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Let’s say you make a commitment $6 per hour for Compute Savings Plans. Term is 1 year and no upfront payment.

AWS Compute Savings Plans example showing how it works
You purchase Compute Savings Plan with $6 per hour commitment. Monthly commitment is ($6x24hrsx30days) $4320
Number of EC2 instances you are running
For simplicity of understanding , let’s assume all instances are m5.4xlarge which are $0.808 per hour. You can have different combinations also.
10 nos
Your monthly EC2 Instance usage charges are
( $0.808 per hr x 24 hrs x 30 days x 10 instances)
$5,817
Savings plan discount on your commitment (26% of $4320. See table above) $1,123
You will pay ($5,817 – $1,123) $4,694

Important point to note. You stop/terminate few instances and your EC2 instance usage charges reduce to $3500 in a month. Even then you will pay your committed amount of $4320 to AWS.

AWS Savings plans also have two options. Compute Savings Plans and EC2 instance Savings Plans with different EC2 pricing discounts. See table above.

Compute Savings Plans. Your EC2 instances can be in any Region, Availability Zone or EC2 Instance Family type(C4, M4,t3,etc). Discount is applied for the amount you have committed.

EC2 Instance savings plans. Discount is applicable only for the specified instance family type(e.g. M5 series) and region(Asia Pacific -Mumbai). You choose the instance type and region when you purchase EC2 Instance Savings Plans. If you run an instance in a different region or family type, discount is not applicable.


6. Which is the best ? Reserved Instances or Savings Plans?
Go for Compute Savings Plans since they provide high flexibility and fewer restrictions.

But you should have some visibility on your next 9 months to 1 year EC2 instance usage. It should not happen that you ramp down 50% of your resources after few months. If that occurs you still have to pay AWS the committed amount for 1 year.

Reserved Instances and EC2 Instance Savings Plans can be preferred if you are very sure about the type of instances and the number of instances you will use in the next 12 months.

How to select the right EC2 Instance for your application. Simple tip here

Need guidance or support to decide on choosing the right option?  Click here to know how you can get help.

And if  you wish to understand AWS Savings Plan in more detail check out the AWS Savings Plans here. For more details on Aamzon Reserved Instances the AWS details are here

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