Reserved Instances and Savings Plans

AWS offers incredible flexibility, but costs can add up quickly. Learning to optimize your spending is a key skill for any backend developer.

In this lesson, we'll explore two powerful ways to reduce your AWS compute bill: Reserved Instances (RIs) and Savings Plans.

Reserved Instances (RIs) allow you to commit to using EC2 instances for a 1-year or 3-year term. In return, AWS gives you a significant discount compared to on-demand pricing.

• Think of it like a long-term rental agreement for a virtual server.
• You pay a fixed amount upfront or monthly for the commitment.
• RIs are great for stable, predictable workloads that run continuously.

When you purchase an RI, you commit to a specific instance family (e.g., m5), operating system (e.g., Linux), and region.

• Commitment: You choose a 1-year or 3-year term.
• Payment Options: You can pay No Upfront, Partial Upfront, or All Upfront. More upfront payment usually means a larger discount.
• Discount: RIs can offer up to 75% off on-demand prices, making them a very effective cost-saving tool.

There are two main types of EC2 Reserved Instances, each offering different levels of flexibility:

• Standard RIs: Offer the highest discount but are less flexible. You commit to a specific instance family, type (e.g., m5.large), and OS.
• Convertible RIs: Offer a slightly lower discount but allow you to change the instance family, OS, or tenancy during the term. This provides more flexibility as your application needs evolve.

RIs can also have different scopes, affecting where your discount applies:

• Regional RIs: Apply to any instance within the specified region, regardless of Availability Zone (AZ). They automatically apply to matching instances. This is generally preferred for flexibility.
• Zonal RIs (Specific AZ): Reserve capacity in a specific Availability Zone. This guarantees capacity but is less flexible if your workload needs to move between AZs.

Savings Plans are a newer, more flexible pricing model introduced by AWS that offers similar significant discounts to RIs.

• Instead of committing to specific instances, you commit to spending a certain amount per hour (e.g., $10/hour) on compute services.
• This hourly commitment applies to a broader range of services, including EC2, Fargate, and Lambda.

With Savings Plans, you commit to a consistent hourly spend for a 1-year or 3-year term, similar to RIs.

• Hourly Commitment: You agree to spend, for example, $5 per hour for 3 years.
• Automatic Coverage: This commitment automatically applies to your usage of eligible compute services. Any usage up to your committed amount is charged at the discounted Savings Plan rate.
• It's like a 'discount coupon' that automatically applies across various compute services.

There are two primary types of Savings Plans, each with different levels of flexibility and coverage:

• EC2 Instance Savings Plans: Offer high discounts (up to 72%) and commit you to a specific instance family in a region (e.g., m5 instances in us-east-1). They are flexible with instance size, OS, and tenancy within that family.
• Compute Savings Plans: Provide maximum flexibility (up to 66% discount). They apply to *any* EC2 instance family, region, size, OS, and also cover Fargate and Lambda usage. Ideal for dynamic workloads.

Both RIs and Savings Plans save money, but understanding their differences is key:

• Flexibility: Savings Plans are generally more flexible, especially Compute Savings Plans, covering more services and allowing instance changes. RIs are more rigid unless Convertible.
• Coverage: RIs cover EC2 only. Savings Plans can cover EC2, Fargate, and Lambda.
• Management: Savings Plans automatically apply to eligible usage, simplifying management. RIs might require more active management if your usage patterns change.
• Discount: RIs can sometimes offer slightly higher discounts for very specific, rigid commitments.

Choosing between RIs and Savings Plans depends on your specific needs:

• Highly Predictable EC2: If you have stable, long-running EC2 instances with no expected changes, Standard RIs might offer the absolute best discount.
• Flexible EC2 or Mixed Compute: For dynamic EC2 needs, or if you also use Fargate/Lambda, Compute Savings Plans are usually the best choice for maximum flexibility and ease of use.
• Specific Instance Family Flexibility: EC2 Instance Savings Plans provide a middle ground, offering good discounts with more flexibility than Standard RIs within an instance family.

You manage a backend application running on EC2 instances. You expect it to run continuously for the next three years, but you anticipate needing to upgrade instance sizes within the same family occasionally. You also use AWS Lambda for some serverless functions.

Which AWS cost-saving option would be the most suitable for your scenario, balancing cost savings with flexibility across your compute services?

We've explored how Reserved Instances (RIs) and Savings Plans are crucial for reducing your AWS compute costs.

• RIs offer significant discounts for committed EC2 usage.
• Savings Plans provide more flexible discounts across EC2, Fargate, and Lambda based on an hourly spend commitment.
• Choosing the right option depends on your workload's predictability, its services used, and your desired flexibility.

By leveraging these strategies, you can significantly optimize your AWS spending!