ELI5: What Are AWS Savings Plans and How Can They Save You Money?

Previously we discussed ‘Reserved Instances’, one of the first discount instruments AWS introduced in late 2009. To help you unravel those complexities, Savings Plans were launched almost a decade after in 2019, and meant to remove the complexity from compute costs. In this post, we demystify AWS Savings Plans.

What exactly are AWS Savings Plans

To understand Savings Plans, let's use an everyday scenario. Picture this: you commute to work every day by bus. The bus company offers two payment options. You could pay for each trip individually, or you could buy a weekly pass. The weekly pass covers any number of rides within a week for a fixed fee. Even if you don't ride the bus every day, the weekly pass can still be cheaper if you ride frequently enough.

This is quite similar to how AWS Savings Plans work.

When you use AWS, you're renting computing power by the hour to run your applications. This is akin to paying for each bus ride individually. AWS refers to this as 'On-Demand Instances'. However, if you consistently use a lot of compute power, those costs can quickly add up.

Here's where Savings Plans come in. They're like buying a weekly bus pass but for AWS compute usage. With Savings Plans, you commit to use a specific amount of compute power, measured in dollars per hour, for a one or three-year period. AWS, in return, offers a significant discount compared to On-Demand Instance prices.

Let's say you commit to $10 of compute usage per hour with a Savings Plan. As long as your compute usage doesn't exceed this committed amount, you'll benefit from the discounted rate. If your usage goes over this amount in a given hour, the excess will be billed at the On-Demand rate.

Two types of Savings Plans

There are four types of AWS Savings Plans:

1. AWS EC2 Savings Plans - These provide savings on EC2 instance usage up to 72%. These plans offer the most flexibility as they can be applied to any instance family, size, operating system, and region.

2. AWS Compute Savings Plans - These provide savings on compute usage for any AWS service that uses CPU, including AWS Fargate, AWS Lambda, and AWS EC2 instances. These plans provide up to 66% savings by committing to a specific amount of compute usage per hour for a period of one or three years.

3. Amazon SageMaker Savings Plans - These plans automatically apply to eligible SageMaker ML instance usages including SageMaker Studio Notebook, SageMaker On-Demand Notebook, SageMaker Processing, SageMaker Data Wrangler, SageMaker Training, SageMaker Real-Time Inference, and SageMaker Batch Transform regardless of instance family, size, or region.

What services do savings plans cover

Savings Plans cover a variety of AWS services. However, the specific services that Savings Plans cover may vary and it's best to check the latest AWS documentation for the most accurate information.

Here are some of the AWS services that typically offer Savings Plans:

• Amazon EC2

• Amazon Fargate

• Amazon EKS

When should you use a savings plan

Savings Plans are a new pricing model that combines the flexibility of On-Demand pricing with the savings of Reserved Instances. With Savings Plans, you commit to a specific amount of usage, measured in dollars per hour, for a period of one or three years.

You can apply your Savings Plan to any EC2 instance, regardless of instance type, family, or region. You can also change your commitment at any time, as long as you stay within the same family of instances. This means you can take advantage of the savings of a Reserved Instance without committing to a specific instance type or region.

How to calculate cost savings with savings plans

Here are the steps to calculate cost savings with AWS Savings Plans:

1. Determine your current on-demand costs for EC2 instances or Fargate containers.

2. Decide on the amount of usage you want to commit to for a one or three year term. This should be based on your projected usage.

3. Compare the on-demand rate of those resources to the discounted rate offered by the Savings Plans.

The difference between your current on-demand costs and the discounted rate is your cost savings.

To view your savings from Savings Plans on the AWS console, you can use the Cost Explorer tool:

1. Sign in to the AWS Management Console > Cost Explorer > RI Coverage tab

2. Choose the time period you want to view (e.g., last month, last quarter, custom date range).

3. In the "Savings Plans and Reserved Instances" section, you'll see a breakdown of your Savings Plans utilization and savings. You can see the number of Savings Plans hours used, the effective hourly rate, and the total savings in dollars.

By using the Cost Explorer, you can get a better understanding of how much money you're saving with your Savings Plans and how effectively you're utilizing them. This can help you make informed decisions about future Savings Plans purchases and optimize your cloud spending.

How to purchase Savings plans

1. Sign in to the AWS Cost Management Console and open the AWS Cost Explorer at https://console.aws.amazon.com/cost-management/home.

2. In the navigation pane, choose Savings Plans.

3. Choose Purchase Savings Plan.

4. For Savings Plan type, choose the type of Savings Plan that you want to purchase.

5. For Term, choose the term length for your Savings Plan.

6. For Payment option, choose the payment option for your Savings Plan.

7. For Savings Plan offering, choose the offering for your Savings Plan.

8. For Commitment, enter the hourly rate amount that you want to commit to use each hour for the term of the Savings Plan.

9. Choose Add to cart.

10. Review the details of the Savings Plan, and then choose Purchase.

Please note that the Savings Plan will automatically apply to any usage that matches its attributes, helping you to save money on your AWS bill.

Also, remember that once purchased, a Savings Plan is a commitment and cannot be cancelled, so please ensure you have chosen the correct options that best suit your needs.

How does Pump manage and save using a savings plan

Pump manages and saves using a Savings Plan as a filler on top of the AWS Reserved Instances strategy to achieve maximum coverage and the biggest savings. For spiky workloads, savings plans usually achieve higher significant cost savings.

Similar to our bus pass example, AWS savings plan is beneficial if your AWS usage is predictable and consistent. They're also a great option if you want flexibility to change the instance type, size, or region without losing the discounted rate.

But keep in mind, Savings Plans, like our weekly bus pass, require a commitment. If you don't fully utilize the committed amount, you'll still be billed for it. Therefore, it's crucial to accurately forecast your usage before opting for a Savings Plan.

In a nutshell, Savings Plans can be a powerful tool for managing your AWS costs. Like choosing between individual bus tickets or a weekly pass, it comes down to understanding your needs and usage patterns. Savings Plans offer a simple, flexible way to save on AWS costs without locking you into specific instance configurations, helping you get the most bang for your cloud buck.