Cost Strategy

Cost Reduction Strategy - Comparing and Choosing Between Savings Plans and Reserved Instances

A detailed comparison of AWS Savings Plans and Reserved Instances (RI) covering mechanics, discount rates, and flexibility. Learn how to choose among Compute, EC2 Instance, and SageMaker Savings Plans and build an effective purchasing strategy.

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Fundamentals of Commitment Discounts

Under the AWS pricing model, On-Demand pricing is the baseline, but committing to usage over a set period unlocks significant discounts. There are two commitment discount mechanisms: Savings Plans and Reserved Instances (RI). RI has been available since 2009 as the traditional discount model, where you reserve a specific instance type, region, and tenancy. Savings Plans, introduced in 2019, is a newer discount model based on committing to a per-hour spend amount (USD/hr). For example, committing to 10 USD per hour of compute usage automatically applies discounts to that amount. Savings Plans offers greater flexibility than RI, and AWS recommends Savings Plans for new commitment purchases. That said, RI has not been deprecated, and in certain use cases RI can still yield higher discount rates.

Three Types of Savings Plans

Savings Plans comes in three types. Compute Savings Plans is the most flexible, applying across EC2 instances, Fargate tasks, and Lambda functions. Discounts continue even when you change instance family, size, region, OS, or tenancy, with a maximum discount of 66% off On-Demand. EC2 Instance Savings Plans commits to a specific region and instance family (e.g., m5 in ap-northeast-1) in exchange for a higher maximum discount of 72%. You can freely change sizes within the same family (m5.large to m5.xlarge) or switch OS. SageMaker Savings Plans is specialized for SageMaker instance usage, designed for ML workload cost optimization. Commitment terms are 1 year or 3 years, with three payment options: All Upfront (maximum discount), Partial Upfront (moderate), and No Upfront (minimum discount). The 3-year All Upfront option yields the highest discount rate, but there is a trade-off with flexibility.

Comparing RI and Savings Plans

The key difference between Savings Plans and RI is the balance of flexibility and discount rate. RI locks you into a specific instance type (Standard RI) or instance family (Convertible RI), making it harder to adapt to workload changes, but Standard RI offers up to 72% discount. Convertible RI allows exchanges but the discount drops to a maximum of 66%. Compute Savings Plans matches the Convertible RI discount rate but is superior in that it applies across regions and services (EC2/Fargate/Lambda). A practical approach is to use EC2 Instance Savings Plans (or Standard RI) for maximum discounts on production DB servers that run 24/7, and Compute Savings Plans for development environments or batch workloads where configurations may change. Savings Plans and RI can be used together, with discounts applied in the order of RI first, then Savings Plans. For practical insights on cloud pricing optimization, you can also explore related books on Amazon.

Purchasing Strategy and Using Cost Explorer

The most critical aspect of purchasing Savings Plans is determining the right commitment amount. Cost Explorer's Savings Plans recommendation feature analyzes usage patterns over the past 7, 30, or 60 days and automatically calculates the optimal commitment amount and estimated savings. While following the recommendation is the safest approach, there are a few caveats. First, the recommendation assumes past usage will continue, so if major workload changes are planned, you need to adjust the recommended value. Second, rather than purchasing 100% of the recommended commitment at once, starting at 70-80% and gradually adding more is a safer approach. Unused commitment is wasted, so starting conservatively is important. Monitor Savings Plans utilization and coverage continuously using Cost Explorer and Budgets. If utilization is below 100%, you have over-purchased; if coverage is low, consider additional purchases.

Commitment Discount Pricing Comparison

Compute Savings Plans apply across EC2, Fargate, and Lambda with a maximum discount of 66%. EC2 Instance Savings Plans are limited to a specific instance family and region but offer a maximum discount of 72%. Reserved Instances are available for EC2 and RDS with discount rates comparable to Savings Plans, but with less flexibility. Combining EC2 Instance plans for a stable baseline and Compute plans for variable usage is an effective strategy.

Summary - Guidelines for Choosing Commitment Discounts

AWS Savings Plans is a flexible commitment discount model that serves as the primary cost reduction tool, replacing RI. Compute Savings Plans apply across EC2, Fargate, and Lambda with strong flexibility to accommodate workload changes. EC2 Instance Savings Plans offer higher discount rates in exchange for committing to a specific instance family. Use Cost Explorer's recommendation feature to calculate the optimal commitment amount and start at 70-80%, purchasing gradually. If your monthly On-Demand spend on EC2/Fargate/Lambda exceeds 1,000 USD, Savings Plans is worth considering.

Related Services

AWS Savings PlansA pricing model offering up to 72% discount on EC2, Lambda, and Fargate with a 1- or 3-year usage commitmentAWS Cost ExplorerA service that visualizes and analyzes your AWS costs and usage to identify optimization opportunitiesAmazon EC2A compute service that provides virtual servers in the cloud

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