AWS Savings Plan vs Reserved Instances: An Overview

AWS offers flexible pricing models such as on-demand instances, Savings Plans, Reserved instances, and spot instances to help its customers avoid a hefty cloud bill. AWS Savings Plan and Reserves Instances are two such cost-effective pricing models that aid to enjoy your AWS services without blowing your budget. Each model offers unique benefits and is designed for specific usage needs. Understanding and identifying the right pricing model for your application, depending on your business requirements and financial constraints can greatly improve the ROI of your cloud investment.

In this article, let us explore the two popular AWS pricing models: AWS Savings Plan and AWS Reserved Instances. Let us explore the features, the pricing discounts they offer, and the advantages of both solutions and understand who can gain the most benefit from each pricing model.

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What is AWS Savings Plans?

AWS supports a pay-as-you-go pricing model, i.e. you pay only for the resources you consume. This model greatly reduces your financial burden by cutting down the cost of purchase and maintenance of expensive infrastructure. You can spin up the resources as required and have the flexibility to scale up or scale down the resources based on demand. These are known as on-demand instances.

The on-demand instance is the default model in AWS. To make it more cost-effective for the user, AWS offers Savings Plans. The AWS Savings Plans can reduce the cost of the services by up to 72% as compared to on-demand instances. In exchange, the user needs to commit to a consistent usage of AWS resources for a 1 to 3-year term. This resource utilization is measured in $/per hour.

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What are the Types of AWS Savings Plans

AWS offers three types of Savings Plans: Compute Savings Plans, EC2 Instance Savings Plans, and Amazon SageMaker Savings Plans.

Compute Savings Plans

Compute Savings Plans is the most flexible pricing model for your EC2 instances offering a discount of up to 66% compared to your on-demand instances. This pricing discount applies regardless of your instance family, size, OS, tenancy, or region. Compute Savings Plans provide flexibility by allowing users to change instance families, sizes, operating systems, and regions while still receiving savings plan discounts.

EC2 Instance Savings Plans

EC2 Instance Savings plan offers up to 72% discount for your instance usage compared to your on-demand instances. It offers a greater discount for your EC2 usage, in exchange for a commitment to using a particular instance family in a particular AWS region. EC2 instance savings plan applies automatically to that specific instance family in the particular AWS region, regardless of the instance size, OS, or tenancy.

SageMaker Savings Plans

SageMaker Savings Plans provide savings of up to 64% off of On-Demand rates. This plan applies to machine learning workloads regardless of instance family, instance sizes, regions, or components. Companies with regular machine learning development, training, and deployment cycles will benefit from the consistent discounts offered by SageMaker Savings Plans.

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Advantages & Limitations of AWS Savings Plan

Understanding the advantages and limitations of AWS Savings Plans will give you a clearer picture of how they might fit into your cloud strategy.

Advantages:

• Savings Plans require a dedicated long-term commitment. This is a major limitation if your future usage is uncertain. Locking in a specific spend rate means you need to be reasonably sure you’ll maintain or exceed that level of usage to fully benefit from the plan.

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How to apply for the AWS Savings Plan

You can utilize AWS Cost Explorer to understand your current AWS consumption and get recommendations on the most suitable Savings Plans commitment for your needs. it simplifies your decision-making process by suggesting an optimal commitment level based on your historical usage. You can customize these recommendations to better align with your specific requirements before making a purchase.

Once you choose the plan, it applies automatically to the eligible AWS services. You can use Cost Explorer for best practice recommendations, performance reporting, and budget alerts. This enables you to keep track of how well your plan is performing and stay on top of your spending. You can also access our AWS Savings Plan Calculator, to gain clear insights into the savings you can achieve by adopting a Savings Plan.

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What are AWS Reserved Instances?

AWS Reserved Instances, or RIs, are a great option to cut down on your AWS expenses if you require consistent usage for the long term. Essentially, Reserved Instances allow you to reserve cloud capacity in advance. This is particularly handy if you’re confident about the amount and type of resources you’ll need over a set period, usually a one to three-year term.

By committing to a certain type and amount of resources, for a fixed term, you get a substantial discount of up to 75% compared to the on-demand rates. You can pay for reserved instances with All upfront, Partial upfront, or No upfront payment options.

Since AWS Organizations treats all the accounts in the organization as one account, all accounts in the organization can receive the hourly cost benefit of Reserved Instances that are purchased by any other account. It is essential to remember that AWS Reserved Instances do not renew automatically. The instances won’t be interrupted but on-demand rates may apply once the reserved instance period expires.

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Types of AWS Reserved Instances

There are different types of RIs, that fit different needs. Here’s a breakdown of the three main types of RIs: Standard Reserved Instances, Convertible Reserved Instances, and Scheduled Reserved Instances.

Standard Reserved Instances

Standard Reserved Instances are the classic RIs, offering the biggest discounts of up to 72%, in exchange for a long-term commitment. Standard RIs are ideal for your business if you know exactly how much instance capacity you will need in the future.

Convertible Reserved Instances

Convertible Reserved Instances are more flexible than Standard RIs. They offer a discount of up to 54%. Convertible RIs allow you to change the attributes of the Reserved Instance during its term. For instance, you can switch families, operating systems, or tenancies of your RI as required. With Convertible RIs, you can enjoy a considerable discount on your resources, while enjoying the flexibility to alter your instance attributes based on your business demands.

Scheduled Reserved Instances

Scheduled Reserved Instances enable you to reserve your RI capacity on a recurring basis with a daily, weekly, or monthly schedule. Scheduled RIs are suitable for users who run mission-critical applications on a periodic basis. Once purchased, these instances will be available to launch during the time windows that you specified. They generally offer a discount of 5 to 10%, compared to the on-demand rates.

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Advantages & Limitations of using AWS Reserved Instances

AWS Reserved Instances are a great option for cost saving. But it has its own advantages and limitations.

Advantages

• Significant Long-Term Savings: With Standard Reserved Instances or Convertible Reserved Instances, businesses can achieve up to 75% cost savings compared to On-Demand pricing, making them ideal for workloads that have predictable, consistent demand over time. This contributes to effective cost optimization for long-term AWS usage.
• Capacity Reservations in Availability Zones: Reserved Instances ensure that you have dedicated capacity in the cloud, particularly within specific Availability Zones. This means you can reserve the computing power you need, avoiding potential shortages during high demand periods and ensuring that resources are available when required. This is particularly useful for applications requiring priority access to compute resources.
• Predictable Expenses and Reduced Financial Risk: By locking in a reduced price over a 1- or 3-year term, AWS Reserved Instances offer predictable expenses, allowing businesses to better plan and manage their cloud costs. This stability helps reduce financial risk by ensuring a fixed cost structure for your AWS resources over time.
• Flexible Payment Options: AWS offers flexible payment options for Reserved Instances, including upfront, partial upfront, or no upfront payments. This allows businesses to choose the payment method that best suits their financial strategy and budget, making it easier to align cloud spending with business objectives.
• Convertible Reserved Instances: Convertible Reserved Instances allow you to change instance attributes such as instance family and operating system during the term, giving you more flexibility while still offering cost savings, albeit slightly lower than Standard RIs.
• Support for Capacity Reservations: Reserved Instances ensure you get dedicated capacity when needed, particularly important for mission-critical workloads where resource availability is essential. This reservation also guarantees that your applications will run smoothly, even in high-demand scenarios.

In summary, AWS Reserved Instances provide a combination of long-term savings, capacity reservations, and predictable expenses, making them a strong choice for businesses aiming to optimize cloud spending while ensuring resource availability. With flexible payment options and the ability to choose between standard or convertible options, RIs offer versatility and cost efficiency tailored to steady, predictable workloads in the cloud.

Limitations

• The flip side of RI is the commitment factor. You have to commit to a one-year or three-year term to use RI capacity. If your usage decreases or your needs change, you might end up paying for the capacity you don’t use.

To mitigate the risk of overpaying for your cloud resources, it’s crucial to capitalize on AWS Cost Optimization Tools. These tools provide valuable insights into your cloud spending and can help you identify opportunities for further cost savings.

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AWS Savings Plan vs AWS Reserved Instances: Which is Right for You?

Choosing between AWS Savings Plans and AWS Reserved Instances can be a little tricky, especially if you are new to the AWS ecosystem. Both options offer significant cost savings compared to on-demand prices, but they cater to different usage patterns and business needs. Choosing the right pricing model for your business depends on a few factors.

Assess Your Usage Pattern

• Assess your historic usage patterns and determine the total capacity you require. if your data shows fluctuating usage patterns, requires frequent scaling-up operations, or needs to experiment with new projects, the AWS Savings Plans is the right choice for your business.

• If you have predictable usage and you have a clear idea about your infrastructure needs, AWS Reserved Instances can be a good match for your application.

Consider Your Need for Flexibility

• Flexibility is a huge factor when choosing your pricing model. With AWS Savings Plans you can easily switch between AWS services or regions. The discount automatically applies to any eligible resource across AWS’s compute services like EC2, Fargate, and Lambda.

• However, AWS Reserved Instances require proper planning. You need to commit to specific instance types within a particular region, but you’ll also get a deeper discount for making this commitment.

Advantage of One Pricing Model over the Other

• While each model has its own set of advantages, AWS Savings Plans apply across instance families and generations as well as AWS Regions. You can apply Savings Plans across different AWS services such as Amazon EC2, AWS Fargate, AWS Lambda, and Amazon Sagemaker.

• With AWS Reserved Instances, you reserve a fixed capacity in a particular Availability Zone, where you can launch your workloads whenever required. Reserved instances are applicable for services like Amazon EC2 and Amazon RDS.

Combined Strategy

• Sometimes, the best approach is not choosing one over the other but using both strategies together to maximize savings. For example, you can use Reserved Instances for the base load of your application with predictable performance requirements and layer a Savings Plan on top for any additional, variable usage.

• Remember that AWS applies RIs to your eligible usage before applying Savings plans. Also, ECS Instance Savings plans apply before Compute Savings plans, which have a broader application scope. 

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Conclusion

To sum it up, you can choose either of these services based on your resource pattern and requirements. AWS Savings Plans are ideal for businesses with consistently high cloud usage who want flexible infrastructure at maximum discounts. AWS Reserved Instances (RIs) are better for businesses with predictable workloads willing to commit to a set usage level for a significant period of time.

But choosing between AWS Savings Plans and AWS Reserved Instances doesn’t have to be an either/or proposition. By understanding your business’s specific needs and how these pricing models work, you can tailor your approach to optimize your cloud spending effectively. Whether you go with one model, combine them, or switch strategies as your business evolves, AWS provides powerful tools to keep your cloud expenses in check.

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FAQs:

Q. What is the difference between Reserved Instances and Savings Plans?
A. Reserved Instances offer discounts on specific EC2 instance types and configurations, while AWS Savings Plans provide broader flexibility with lower prices for various services, including EC2, Lambda, and Fargate, in exchange for a long-term spend commitment.

Q. What is the difference between Reserved Instances and Spot Instances in AWS?
A. Reserved Instances provide predictable, discounted pricing for a long-term commitment, while Spot Instances offer steep discounts by utilizing unused EC2 capacity, with the risk of instances being terminated when capacity is needed.

Q. Can Reserved Instances be tagged?
A. No, Reserved Instances themselves cannot be tagged, but the EC2 instances they apply to can be tagged for better resource management.

Q. Can I use Reserved Instances with ECS?
A. Yes, Reserved Instances can be used with Amazon ECS (Elastic Container Service) to run containerized applications at a lower cost by covering the EC2 instances used by the ECS tasks.

Q. What is the difference between Reserved Instances and On-Demand Instances?
A. Reserved Instances offer discounted pricing for a long-term commitment, while On-Demand Instances provide flexibility with no upfront costs, allowing you to pay for compute capacity by the hour or second without a long-term commitment.

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How can we help?

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