AWS Savings Plans
A flexible cost reduction model offering up to 72% discount on EC2, Fargate, and Lambda pricing in exchange for a 1-year or 3-year usage commitment
Overview
AWS Savings Plans is a pricing model that offers up to 72% discount off on-demand rates in exchange for committing to a consistent amount of usage (measured in USD/hour) for a 1-year or 3-year term. Unlike Reserved Instances (RIs), Savings Plans flexibly accommodate changes in instance family, region, OS, and tenancy. Three types are available - Compute Savings Plans, EC2 Instance Savings Plans, and SageMaker Savings Plans - with usage beyond the commitment amount charged at on-demand rates.
Three Types of Savings Plans and Comparison with RIs
Compute Savings Plans are the most flexible type, applying to EC2, Fargate, and Lambda across the board. Discounts are maintained even when you change instance family, region, OS, or tenancy, making them ideal for environments where workload configurations change frequently. The maximum discount is 66% - the lowest among the three types, but a reasonable trade-off for the flexibility. EC2 Instance Savings Plans lock in a region and instance family in exchange for up to 72% discount. Within the same family, you're free to change instance size (m5.large to m5.2xlarge), OS (Linux to Windows), and tenancy (shared to dedicated). They deliver the best cost efficiency when workloads are concentrated in a specific region and instance family. Compared to RIs, Standard RIs may offer slightly higher discounts than Savings Plans in some cases, but their change flexibility is significantly inferior. Convertible RIs offer flexibility comparable to Savings Plans, but the exchange process is cumbersome. The current recommendation is to use Savings Plans as the first choice for new purchases, limiting RIs to maintaining existing contracts.
Calculating Commitment Amounts and Purchase Strategy
The most critical aspect of purchasing Savings Plans is calculating the right commitment amount. If the commitment is too high, unused portions are wasted; if too low, you're not maximizing discount benefits. Cost Explorer's Savings Plans recommendations analyze past usage patterns to suggest optimal commitment amounts. Even when following recommendations, compare the 7-day, 30-day, and 60-day recommendations to account for seasonal fluctuations and project changes. As a purchase strategy, starting at 70-80% of the recommended amount and adding more after a few months of actual data is the safest approach. Three payment options are available - all upfront, partial upfront, and no upfront - with all upfront offering the highest discount. However, many organizations choose no upfront for cash flow reasons, accepting the discount difference (typically 5-10%). Compute Savings Plans and EC2 Instance Savings Plans can be combined: a hybrid strategy that allocates EC2 Instance Savings Plans (higher discount) to the stable baseline and Compute Savings Plans (higher flexibility) to the variable portion delivers the best cost efficiency.
Monitoring Utilization and Contract Renewal Decisions
After purchasing Savings Plans, continuously monitor two key metrics: utilization and coverage. Utilization is the ratio of actual usage to the commitment amount - the closer to 100%, the less waste. If utilization stays below 80%, you should reduce the commitment amount at the next renewal. Coverage is the ratio of Savings Plans-covered usage to total on-demand usage - low coverage indicates room for additional purchases. The recommended setup is to configure Savings Plans utilization and coverage budgets in AWS Budgets, receiving alerts when they fall below thresholds. For contract renewal decisions, the choice between 1-year and 3-year terms is crucial. Three-year terms offer higher discounts (roughly 15-20% additional discount over 1-year terms) but require forecasting workloads three years out. If your architecture may change significantly during a cloud-native migration, repeating 1-year terms carries lower risk. The best practice is to disable auto-renewal on Savings Plans and re-analyze usage patterns at renewal time to purchase the optimal plan fresh.