AWS Savings Plan vs Reserved Instance: What's the difference?

Introduction

As your user base grows, it's essential to understand the fine details of the purchase options that AWS offers, so your AWS bill doesn't become unmanageable. The two options that typically have the biggest impact on your AWS spending are AWS Reserved Instances and AWS Savings Plans. With this guide, we'll help you understand both of these purchase options, compare them, and help you make an informed cost-savings decision.

What Are AWS Reserved Instances?

AWS Reserved Instances (RIs) are not physical instances, but a billing discount applied to the usage of your instances. Reserved Instances are available for Amazon EC2, RDS, Elasticache, Redshift and Opensearch, though reservations aren't shareable across these services. Reserved Instances provide you with a significant discount, up to 75% compared to on-demand instance pricing. In exchange, you commit to a specific term of usage, of either one or three years.

This commitment is based on a few parameters: the service, the type of instance, the region, the tenancy, and the Operating System. The fact that these parameters can't be modified after the Reserved Instance is purchased means that some planning is required before purchasing Reserved Instances.

Benefits of AWS Reserved Instances

Cost savings

Reserved Instances provide significant cloud savings over on-demand instances. The discount comes from the long-term commitment you make to AWS, and the savings become more significant if you pay upfront for the entire term.

When compared to On-Demand instances, Reserved Instances can save you up to 75%, depending on the commitment terms. Therefore, for stable and predictable workloads, Reserved Instances offer tremendous financial benefits.

Flexibility

There are two types of Reserved Instances:‍

Standard Reserved Instances: They apply to a specific instance family, OS and tenancy. For example, if you purchase a Standard RI for an m6g.large instance, you cannot use the same Standard RI for an m7g.large instance. Standard Reserved Instances can save you up to 75%.

Convertible Reserved Instances: They can be applied to different instance families, OSs and tenancies. For example, if you purchase a Convertible RI for an m6g.large instance, you can use the same Convertible RI for an m7g.large instance. Convertible Reserved Instances can save you up to 75%. Keep in mind that Convertible Reserved Instances are only available for Amazon EC2. RDS, Elasticache, Redshift and Opensearch can only use Standard Reserved Instances.

Both Standard and Convertible Reserved Instances can be applied to different Availability Zones, but they only apply to the Region where they were purchased. You cannot use in the US East (N. Virginia) region a Reserved Instance purchased in the EU (Ireland) region.

When Is It Best To Use AWS Reserved Instances?

If your workload is stable, predictable, and you can reliably anticipate the instance type, size, and region, Reserved Instances provide an excellent way to save cloud costs.

Reserved Instances are also an ideal option for applications with predictable usage patterns that are expected to run for an extended period of time. If that is your case, Reserved Instances will give you significant cost savings. In general, they're an excellent option for production environments that you know will keep running for at least a year.

So, these are some of the main benefits of the AWS reserved instances. To find out more about AWS reserved instances, we wrote about that here.

What are AWS Savings Plans?

AWS Savings Plans are a pricing model similar to Reserved Instances, but which offer greater flexibility while still providing significant savings. With Savings Plans, you commit to a certain level of compute usage, measured in dollars per hour, for a duration of one or three years. In return, you receive a significant discount of up to 72% on your compute usage, compared to the on-demand price for the same resources.

Unlike Reserved Instances, Savings Plans apply across any instance family, size, and region, and can be used for Amazon EC2 instances, AWS Lambda, and AWS Fargate usage. Savings Plans aren't tied to a specific service, so you can migrate from EC2 instances to ECS on Fargate or to AWS Lambda and keep enjoying the benefits of your Savings Plan.

Benefits of AWS Savings Plans

Cost savings

The principal advantage of AWS Savings Plans mirrors that of Reserved Instances – cost savings. You commit to paying AWS a fixed amount of money over a certain term (1 or 3 years), regardless of your actual usage, and you save up to 72% compared to the cost of the same compute usage with the on-demand price. Savings Plans offer an uncomplicated way to save money, with the savings automatically applied to the compute usage across your accounts and across EC2, Fargate and Lambda.

Flexibility

There are three types of Savings Plans:‍

AWS Compute Savings Plans: This option of Savings Plans provides more flexibility than that of Reserved Instances. Since they apply to any instance family, operating system, tenancy or service (EC2, Fargate or Lambda), it doesn't matter if your compute needs change over time, including if you use another AWS service. The discount will apply to your compute usage as long as it doesn't exceed the commitment.

EC2 Instance Savings Plans: EC2 Instance Savings Plans require a commitment to a specific instance family in a chosen AWS Region (for example, m6g in us-east-1), making them less flexible than Compute Savings Plans. These plans automatically apply to usage regardless of size, OS, and tenancy within the specified family in a Region. However, they do not apply to different families, different regions or different compute services, being only available for EC2 instances. EC2 Savings Plans are less flexible than Compute Savings Plans, but they are still a good option considering they provide higher savings for EC2.

SageMaker Savings Plans: SageMaker Savings Plans only apply to SageMaker, and not to other compute resources. They can reduce your SageMaker costs by up to 64% compared to the on-demand price. They're only available for SageMaker, and don't work across other AWS services. These plans automatically apply to SageMaker usage across any instance family (ml.m5, ml.c5, etc.), instance sizes (ml.c5.large, ml.c5.xlarge, etc.), region (us-east-1, us-east-2, etc.), and component (Notebook, Training, etc.). Currently, SageMaker Savings Plans are the only way to reduce the compute expenses of SageMaker.

When Is It Best To Use AWS Savings Plans?

AWS Savings Plans offer an optimal solution for those with a consistent baseline of compute usage that varies in terms of instance types or regions. For example, if you have a steady workload with few traffic spikes, and need the flexibility to change instance families, Savings Plans would be the best option for you.

Moreover, Savings Plans are your best option if you're using a mix of EC2, Fargate and Lambda across your environments, since they offer a unified saving model across these services. This option simplifies the management efforts while still providing significant cost benefits.
If you're only using EC2 instances in your environments and need more flexibility than what Reserved Instances can provide, then EC2 Savings Plans will be the best option for you.

To reduce SageMaker costs, SageMaker Savings Plans are currently the best and only option. We talked more about the AWS savings plans, here.

What is the difference between AWS Reserved Instances and Savings Plans?

While AWS Reserved Instances (RIs) and Savings Plans both offer significant savings, they have different features, benefits, usage structures and restrictions. Let's compare the two across flexibility, available services, automated coverage, the ability to resell or exchange, and potential savings amount.

Flexibility

Considering flexibility, AWS Savings Plans take the lead. Reserved Instances offer a discount for specific instance families, while Savings Plans provide a discount across any instance family, size, and AWS region. They can accommodate changes in your compute needs throughout the commitment period without any need for modifications. This provides organizations with the ability to adapt to evolving business needs while still enjoying substantial discounts. Savings Plans are so flexible that you can re-architect your entire workload to make it serverless, or move away from serverless towards containers or EC2 instances, and keep using the same Savings Plan throughout your architectures.

On the other hand, Reserved Instances offer limited flexibility. They apply to a specific instance family and configuration. AWS does have the option of Convertible Reserved Instances, which allow you to change the instance family during the term of your reservation, but their flexibility still isn't as great as that of Savings Plans.

Available Services

When it comes to saving money on compute capacity, Reserved Instances will only apply to Amazon EC2 instances, limiting you to that service. On the contrary, Compute Savings Plans apply to EC2, Fargate and Lambda. This wide-ranging coverage makes Savings Plans a better fit for organizations that use a combination of these services, and provide you with the flexibility to re-architect your workloads and still enjoy the discounts.

If your workload only uses EC2 instances, EC2 Savings Plans will give you flexibility across OS and tenancy, making them a good alternative to Reserved Instances if that flexibility is important to you.
For RDS, Elasticache, Redshift and Opensearch, Reserved Instances are your only option, since Savings Plans only apply to compute services.

For SageMaker, the only available option is SageMaker Savings Plans, since Reserved Instances don't cover this service.

Resell or Exchange

AWS offers the flexibility to sell unused Reserved Instances in the Reserved Instance Marketplace, which can help recover cloud costs if your compute needs change during the term.
In contrast, AWS Savings Plans are not resellable. However, their broad coverage and flexible nature tend to reduce the likelihood of unused commitments. With Pump’s group buying model, it is however possible to transfer savings plans from one AWS account to another within the same org. Another reason to be opting for a service like Pump to optimize your Reserved Instances and Savings Plan purchases.

Potential savings amount

In terms of potential savings, both Reserved Instances and Savings Plans are usually comparable. For some particular instance families, Reserved Instances will be offered at a lower price than Savings Plans, making them the most cost-efficient option. Additionally, if your compute needs change, you can resell your Reserved Instances on the AWS Marketplace, to recoup some of the costs. The exact pricing varies per instance family and region, and changes over time. You can view the current prices at the EC2 Pricing page.

Savings Plans, on the other hand, usually tend to result in biggest savings in the long term, since they allow you to upgrade to newer instance families as they come out. Newer instance families are nearly always cheaper and more powerful than previous generations. If your architecture changes, they're the best option, since they also apply to Fargate and Lambda. However, if your compute needs change drastically, you won't be able to sell excess Savings Plans on the AWS Marketplace.

What is the best way to use Reserved Instances and Savings Plans?

One way to use Reserved Instances and Savings Plans is to forecast your compute needs and manually purchase the Reserved Instance or Savings Plan that you think will be correct. This is the traditional way of doing it, and it works well for teams who spend a significant amount of time and effort analyzing all the different purchase options and deciding what's best for their specific use case.

An easier and better way to use Reserved Instances and Savings Plans is to use Pump. Pump will forecast your individual spend and auto purchase the most optimal Reserved Instances or Savings Plans on your behalf, so you get the maximum discounts. Pump guarantees a 30 day money back on those purchases, so if your actual usage is lower than the purchased Reserved Instances or Savings Plans for 30 days, we offer you a money back guarantee.

Pump not only removes the need to manually forecast and analyze all the pricing alternatives, it also uses best-in-class algorithms to perform these calculations and forecasts, so you always get the most savings out of AWS Reserved Instances and Savings Plans. Pump is free to use, there are no upfront, monthly or hidden costs or fees. Read here on how pump finds 60% savings on AWS.

Conclusion

Both AWS Reserved Instances and AWS Savings Plans are powerful tools to optimize AWS costs. The decision to choose one over the other depends on the specific needs and requirements of your workload. Reserved Instances are perfect for predictable and stable workloads, most importantly with a stable architecture. Savings Plans offer greater flexibility for dynamic and diversified workloads, and will let you upgrade your infrastructure and still enjoy the cost reductions. Additionally, some services such as RDS only have Reserved Instances available for them, and some others such as SageMaker can only benefit from Savings Plans.

Overall, the key to maximizing savings is to regularly review your usage patterns and application requirements, to determine the most cost-effective purchase options. In many cases, a combined strategy using both Reserved Instances and Savings Plans can be the most optimal decision, leading to the highest savings.  

If the forecasting and calculations seem overwhelming to you, or if you prefer to automate that and focus on building your business, Pump can automate the purchase of Reserved Instances and Savings Plans, so you maximize your AWS savings effortlessly. Additionally, [Pump can secure discounts for these AWS services.