The difference between AWS savings plan vs reserved instances

Cost Optimization

March 10, 2024 • 8 min read

When you neglect cost analysis in your AWS workloads, your cloud bill can soon spiral, particularly as you scale. AWS has different options to help you navigate costs. These were designed to help you effectively manage your cloud infrastructure. While you can use both, this article will identify the key differences between the AWS savings plan vs reserved instances because every business is different and requires careful consideration about what works best to achieve cloud optimization. Let’s take a look at how these fit into your business.

Understanding the AWS savings plan 

The AWS Savings Plan is a flexible pricing model that allows customers to save money on their Amazon Web Services (AWS) usage by committing to a specific amount of usage in dollars per hour or year, rather than specific instance types. You don’t purchase individual instances. They provide significant cost savings of up to 72% compared to on-demand pricing and can be used for a wide range of AWS services. Savings Plans offer customers cost predictability and flexibility, making it easier to manage and optimize their AWS spending.

What is the purpose of the AWS savings plan? 

The primary purpose of AWS savings plans is to help customers reduce their AWS costs by providing a more flexible and predictable pricing model. By committing to a specific amount of usage in dollars per hour or per year, customers can benefit from significant cost savings compared to on-demand pricing. Savings plans offer cost predictability and allow customers to optimize their spending while maintaining the flexibility to use a variety of AWS services.

What are the different types of savings plans? 

There are three main types of AWS Savings Plans:

1. Compute savings plans: AWS Compute Savings Plans provide significant savings (up to 66%) over On-Demand pricing, allowing users to commit to a consistent amount of compute usage (measured in $/hr) for a 1 or 3-year term. They offer flexibility by automatically applying savings across any combination of instances in a region, family, or size, providing a cost-effective solution for a wide range of workloads.

2. EC2 instance savings plans: EC2 Savings Plans from AWS are a pricing model offering significant cost savings (up to 72%) for users committing to a consistent amount of EC2 instance usage for a 1 or 3-year term. They provide flexibility by automatically applying savings across different instance types, sizes, and regions.

3. SageMaker savings plans: Amazon SageMaker Savings Plans offer a flexible pricing model for Amazon SageMaker, where users commit to a consistent amount of usage (measured in $/hour) for either a one or three-year term. This commitment results in potential cost reductions of up to 64%, providing users with increased flexibility and savings in their SageMaker usage.

The advantages of AWS savings plans

Flexibility: AWS savings plans offer flexibility by allowing customers to commit to a dollar amount, rather than specific instance types. This means you can adapt to changing workload requirements without losing the cost-saving benefits.

Cost savings: Savings plans provide substantial cost savings compared to on-demand pricing, making it an attractive option for businesses looking to optimize their AWS spending. 

Automatic discounting: Savings plans automatically apply discounts to a broad range of AWS services, including EC2, Fargate, and Lambda, making it easier to achieve cost reductions without the need to constantly monitor and adjust reservations. 

Simplified pricing: AWS savings plans simplify the pricing structure, making it easier to understand and manage your AWS costs. This can streamline cost management and budgeting for your cloud infrastructure. 

Coverage across services: Savings plans cover various AWS services, making them versatile for different workloads, from virtual machines to serverless computing, ensuring that you can enjoy cost savings across your entire AWS environment. 

Elasticity: Savings plans are designed to scale with your usage, so you can adapt to changes in demand and still benefit from cost savings as your AWS usage fluctuates.

The disadvantages of saving plans 

Commitment: Committing to a specific dollar amount may not be suitable for all businesses, especially those with highly unpredictable workloads. If your usage varies significantly, you might not fully realize the cost savings. 

Complexity: Understanding and choosing the right savings plan can be complex, especially for organizations with diverse AWS usage patterns. Selecting the appropriate plan requires careful analysis of historical usage and future requirements.

Limited service support: While savings plans cover many AWS services, they may not apply to every service. Some specialized or new AWS services may not benefit from the same level of discounting.

No family or size specificity: Unlike reserved instances, savings plans do not allow you to specify instance families or sizes. This can be a disadvantage if you have very specific instance requirements.

Lack of regional specificity: Savings plans are applied globally and don’t provide regional specificity, which can be less cost-effective if you have specific regional usage.

Unused commitment: If you overcommit to a Savings Plan, you might end up with unused commitment, which could result in spending more than necessary.

Limited scope for Lambda: While there are Lambda Savings Plans, they have limitations and may not cover all aspects of Lambda usage, potentially requiring additional cost management for serverless workloads.

It’s important to carefully evaluate your specific AWS usage patterns and business needs to determine if AWS savings plans are the right cost-saving solution for your organization or if other pricing models, like reserved instances or on-demand pricing, may be more suitable. 

Understanding Reserved Instances

Reserved Instances (RIs) in AWS are a cost-saving mechanism where customers commit to pre-paying for specific Amazon EC2 instance types, families, and regions for one or three years. In return, they receive significant discounts on the hourly usage rates compared to on-demand pricing. RIs are ideal for workloads with predictable usage, providing budget predictability and cost efficiency for long-term AWS resource usage.

What is the purpose of reserved instances?

The primary purpose of Reserved Instances (RIs) in AWS is to help customers save money on their cloud computing costs by providing substantial discounts on Amazon EC2 instance usage. RIs are particularly beneficial for workloads with predictable and steady usage patterns, as they offer cost predictability and stability over a one- or three-year commitment period. By reserving instances, customers can effectively lower their long-term AWS infrastructure expenses, making it an essential tool for cost optimization in the cloud.

AWS Reserved Instances pricing 

AWS Reserved Instances (RIs) offer a cost-effective pricing model for Amazon Web Services customers. When you purchase an RI, you commit to using a specific instance type in a particular region for a one-or three-year term. In return, you receive a significant discount compared to On-Demand pricing for that instance type, but the capacity is reserved, and you pay regardless of whether you use it or not.

What are the benefits of reserved instances? 

The benefits you can experience while using Reserved Instances (RIs) in AWS include:

Cost savings: RIs provide significant discounts compared to on-demand pricing, resulting in lower overall AWS costs.

Predictable expenses: RIs offer cost predictability, making it easier to budget and forecast AWS expenditures.

Stability: RIs ensure that specific instance types are available when needed, helping maintain system stability and performance.

Long-term savings: Ideal for workloads with steady usage, RIs are designed to yield savings over the one- or three-year commitment period.

Customization: RIs can be tailored to specific instance types, families, and regions, allowing you to match your commitments to your exact needs.

Flexible payment options: AWS offers different payment options for RIs, such as all upfront, partial upfront, or no upfront, giving you flexibility in how you pay for your reserved capacity.

Priority access: RIs ensure that you have priority access to the instances you’ve reserved during peak usage times.

Reduced financial risk: By committing to RIs, you reduce the financial risk associated with fluctuating on-demand pricing.

What are the disadvantages of reserved instances? 

Reserved Instances (RIs) in AWS come with several disadvantages, including the need for upfront payments, limited flexibility for dynamic workloads, complexity in choosing the right RIs, and a one-or three-year commitment period that may not suit all business needs. Unused capacity and regional inflexibility can also be drawbacks. Careful planning and analysis are essential to ensure that RIs align with your organization’s specific usage patterns and provide the expected cost savings without causing financial strain or wasted resources.

How are AWS reserved instances charged? 

When you purchase an RI, you commit to using a specific instance type in a particular region for a one- or three-year term. In return, you receive a significant discount compared to On-Demand pricing for that instance type, but the capacity is reserved, and you pay regardless of whether you use it or not.

Reserved Instances are charged through a combination of an upfront payment and a reduced hourly usage rate. Customers choose from different payment options, including all upfront, partial upfront, or no upfront payment. The upfront fee is paid once, while the reduced hourly rate is applied to instance usage, resulting in lower costs compared to on-demand pricing. The specific pricing details depend on the chosen RI type, term, and payment option.

The key difference between AWS saving plans and reserved instances 

The main difference between Reserved Instances (RIs) and Savings Plans in AWS is in how they are structured and the level of flexibility they offer. RIs involve a commitment to specific instance types, families, and regions for a defined duration, providing substantial discounts on those specific resources. In contrast, Savings Plans offer more flexibility by allowing customers to commit to a dollar amount and automatically apply those savings to a broader range of AWS services, regardless of specific instance types. Savings Plans are often better suited for dynamic or diverse workloads, while RIs are ideal for predictable and specific resource needs.

A closer look at Savings Plan vs Reserved Instances

Savings plan Reserved instances
Flexibility Savings Plans offer more flexibility than RIs. With Savings Plans, you commit to a specific amount of money per hour (or per second) rather than a specific instance type in a region, allowing you to switch instance types, families, operating systems, and regions while still benefiting from the discount.RIs are more rigid as they require you to commit to a specific instance type in a specific region, which can limit your flexibility in adapting to changing workload needs.
ApplicabilitySavings Plans can be applied to a broader range of services, including EC2 instances, Lambda functions, and Fargate containers, making them versatile for various workloads.RIs are primarily designed for EC2 instances, with limited support for other AWS services.
Payment modelSavings Plans offer a more flexible payment model, allowing you to pay for the usage within your commitment, and any additional usage outside of the commitment is billed at regular on-demand rates.RIs require you to pay upfront, partially upfront, or with no upfront payment, but the reserved capacity is billed whether you use it or not.
Term lengthSavings Plans are available for a one- or three-year term, similar to RIs.RIs are also available for one- or three-year terms, with different pricing options.
Regional portabilitySavings Plans offer more regional flexibility, allowing you to switch your usage across AWS regions.RIs are typically tied to a specific AWS region, which can be less flexible if your workload needs to be moved to a different region.
Recommendation and managementAWS provides a recommendation service to help you choose the right Savings Plans. Management is simplified as you only need to monitor your commitment in dollars.RIs require more manual management and may involve dealing with specific instance types and availability zones.

In summary, savings plans offer greater flexibility, broader applicability, and a more adaptable payment model compared to Reserved Instances, making them a popular choice for many AWS customers, particularly those with dynamic workloads. However, the choice between the two depends on your specific use case and how you want to optimize your AWS cost savings.

How to optimize your cloud costs? 

Neglecting cost analysis in your AWS workloads can lead to escalating cloud bills as you scale. The cost management module within the cloud management platform, StackZone, not only increases users’ productivity by 60% percent on average but also achieves a 35% optimization rate on your cloud expenditure quickly after the software’s deployment. 

StackZone perfects your configurations to set you up with the ideal environment to effectively control your costs from day one. With a range of features as well as 24/7 monitoring and maintenance, the user-friendly console functions as the ultimate toolkit to manage your security, compliance, and cost in one place. It intelligently guides you to prevent wastage while driving your performance so you experience your monthly AWS bill reduction! 

One feature includes the saving plan notifications which inform you of upcoming expirations and queued savings plan purchases so you’re always in the loop. 
If you want to actively lower your monthly cloud bill and prevent your costs from spiralling, then StackZone can help you. See for yourself in a demo and have your questions answered. 

This article was written by Graham Calder, CEO of StackZone

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