Ultimate Guide to Reserved Instances and Savings Plans

Cloud costs are rising, and UK businesses are wasting 32% of their cloud budgets. Reserved Instances (RIs) and Savings Plans offer up to 72% savings, helping reduce waste and bring predictability to cloud spending. Here's what you need to know:

• Reserved Instances (RIs): Commit to specific instance usage for 1 or 3 years. Best for stable, predictable workloads like production environments. Choose between:
  • Standard RIs: Higher savings (up to 72%), but limited flexibility.
  • Convertible RIs: Slightly lower savings, but more adaptable to changes.
• Savings Plans: Commit to a consistent hourly spend (£/hour) for 1 or 3 years. More flexible than RIs, covering multiple services (e.g., EC2, Lambda, Fargate) and regions. Options include:
  • Compute Savings Plans: Broad flexibility, up to 66% savings.
  • EC2 Instance Savings Plans: Higher savings for specific EC2 workloads.
  • SageMaker AI Savings Plans: Tailored for machine learning tasks.

Quick Comparison

Key takeaway: Combine RIs for predictable needs with Savings Plans for flexibility. Use tools like Amazon CloudWatch to monitor usage and avoid overcommitting. For tailored advice, consult experts like Hokstad Consulting to optimise your cloud costs effectively.

Savings Plans and Reserved Instances - What purchase strategy is right for you? | AWS Events

What Are Reserved Instances

Reserved Instances (RIs) offer discounts on your cloud service bills rather than on the physical hardware itself. When you purchase an RI, you commit to using a specific instance type within a particular region for either one or three years. In exchange, you benefit from reduced hourly rates compared to standard on-demand pricing [4].

Think of RIs as a subscription for your cloud resources. By committing to consistent usage patterns, you can avoid the higher costs of on-demand pricing. These discounts are applied automatically to your monthly bill whenever your usage matches the reserved capacity you’ve committed to [4].

The only difference between reserved and on-demand instances is in the billing... All you're doing is committing to use in return for a lower hourly rate, which AWS will apply to your bill after the month ends, depending on the instances that best fit your workload. - Veronica Miller, cybersecurity expert at VPNoverview [6]

RIs are particularly useful for applications that run continuously and have predictable usage patterns. For example, production environments, database servers, and web applications that require consistent uptime are ideal candidates. If your business relies on guaranteed capacity in specific regions, RIs ensure resources remain available even during peak demand periods [4].

However, any usage beyond your reserved capacity is billed at on-demand rates. This approach allows businesses to lock in savings for their baseline needs while retaining the flexibility to handle unexpected surges in demand [4].

Next, let’s explore the two types of RIs designed to meet various business needs.

Types of Reserved Instances

Reserved Instances are available in two main types, each tailored to different levels of flexibility and cost savings.

Standard Reserved Instances provide the largest discounts but come with fixed attributes. Once purchased, you can’t change the instance family, operating system, or tenancy. However, adjustments can be made to certain aspects, such as availability zone, instance size (for Linux OS), and networking type. Standard RIs typically offer discounts averaging 40% for one-year terms and 60% for three-year commitments [2].

Convertible Reserved Instances offer more flexibility but slightly lower discounts. These allow you to exchange your reservation for different instance families, operating systems, tenancy options, or payment methods during the term. Convertible RIs also let you take advantage of price reductions if newer, cheaper instance types are introduced. Discounts for Convertible RIs average 31% for one-year terms and 54% for three-year commitments [2].

Choosing between Standard and Convertible RIs depends on your business needs. Companies with stable, predictable environments often choose Standard RIs to maximise savings. Meanwhile, organisations undergoing technological changes or expecting shifts in their infrastructure tend to prefer Convertible RIs for their flexibility.

Understanding these options helps you decide which RI type aligns best with your goals.

Benefits of Reserved Instances

The standout benefit of Reserved Instances is the potential for significant cost savings. Businesses can save up to 72% compared to on-demand pricing, with the most substantial discounts available for three-year commitments [4][5]. For UK firms operating within tight IT budgets, these savings can free up funds for other growth initiatives.

Another key advantage is predictable pricing. RIs turn fluctuating cloud costs into fixed, forecastable expenses, making it easier to plan budgets and manage cash flow. This predictability is especially helpful for businesses presenting annual budgets to stakeholders or dealing with financial forecasting [4].

If you need always-on compute power, say for an application under constant usage, and that application will be running for at least a year, reserved instances are a much better option than on-demand because you will save a huge amount. - Nelson Ford, founder and principal solutions architect at Pilotcore [6]

RIs also reserve capacity in specific availability zones, ensuring that critical applications have guaranteed resources even during periods of high demand. This is especially beneficial for businesses in competitive markets where service reliability directly impacts revenue [4].

For large enterprises with well-defined projects and long-term planning, RIs offer both cost savings and operational certainty. They are particularly well-suited for production environments where reliability and cost control are top priorities [4].

Finally, RIs simplify billing. The discounts apply automatically to matching instances, so there’s no need to overhaul your infrastructure. This makes it easy to integrate RIs into your existing systems without disrupting operations [4].

What Are Savings Plans

Savings Plans build on the cost-saving features of Reserved Instances, offering a more flexible way to manage cloud spending. Instead of locking into specific instance types or configurations, you commit to a consistent spend in pounds per hour over one or three years. This flexibility makes Savings Plans especially appealing for UK businesses with changing infrastructure needs.

Savings Plans are a flexible pricing model that offer low prices on Amazon EC2, AWS Lambda, and AWS Fargate usage, in exchange for a commitment to a consistent amount of usage (measured in $/hour) for a 1 or 3 year term. – Amazon Web Services [7]

When you sign up for a Savings Plan, the discounts are applied automatically. You pay the reduced rate for usage up to your committed spend, while any additional usage is billed at regular on-demand rates [7][8]. This automatic application of discounts simplifies cost management [9].

For UK businesses dealing with fluctuating workloads or undergoing digital transformation, Savings Plans offer the benefits of long-term commitments without the rigidity of older models. Whether you're scaling up during busy seasons or adjusting infrastructure as your business grows, these plans provide flexibility across regions, operating systems, and services - all while helping to keep costs down.

Let’s now explore the different types of Savings Plans and how they align with various cloud usage scenarios.

Types of Savings Plans

AWS provides three types of Savings Plans, each tailored to specific needs and levels of flexibility.

Compute Savings Plans are the most flexible option, covering Amazon EC2, AWS Lambda, and AWS Fargate usage. These plans apply across instance families, regions, operating systems, and tenancies, offering cost reductions of up to 66% compared to on-demand pricing [7]. They’re ideal for businesses with diverse workloads or plans to expand their cloud operations across regions.

EC2 Instance Savings Plans offer the highest potential savings - up to 72% off on-demand rates - but come with stricter conditions. These plans require a commitment to a specific instance family within a chosen AWS region, though you can still adjust instance sizes, operating systems, and tenancy within that family [7]. They’re a good fit for businesses with steady and predictable EC2 workloads.

SageMaker AI Savings Plans are designed for machine learning workloads, providing savings of up to 64% on Amazon SageMaker usage [10]. These plans allow flexibility across instance families, sizes, components, and regions within the SageMaker ecosystem, making them a strong choice for businesses with consistent AI and machine learning needs.

For businesses with changing cloud usage patterns, Compute Savings Plans usually offer the best mix of savings and adaptability, allowing infrastructure adjustments without losing cost benefits.

Understanding these options is key to leveraging Savings Plans for cost optimisation across different operational needs.

Benefits of Savings Plans

The main appeal of Savings Plans lies in their ability to significantly reduce costs while keeping operations flexible. With potential savings of up to 72% compared to on-demand pricing [7][8], UK businesses can manage their cloud expenses more effectively without sacrificing performance or availability.

Automatic discounts are a major benefit, as they remove the need for constant monitoring. Unlike Reserved Instances, which require careful oversight to maximise value, Savings Plans apply discounts to eligible usage automatically, reducing administrative efforts [9].

Budgeting becomes simpler, as your committed spend provides predictability, and any usage beyond that is charged at standard rates.

AWS also offers extra conveniences, including a seven-day return window for plan adjustments, so you can rethink your commitment if circumstances change [9]. Additionally, you can schedule future purchases to ensure uninterrupted coverage when existing plans expire [9].

For UK businesses in competitive markets, these plans provide the cost control necessary to stay profitable, while maintaining the agility to adapt to shifting market demands.

Reserved Instances vs Savings Plans

Reserved Instances lock you into specific instance configurations at fixed prices, while Savings Plans focus on committing to a fixed hourly spend (£/hour), offering more flexibility in how discounts are applied. This fundamental difference impacts how businesses can use and benefit from each option. AWS often recommends Savings Plans due to their adaptability [11], but the right choice depends on your workload patterns and long-term strategy. Let’s break it down to help you decide which option aligns with your needs.

Comparison Table

From the table, it’s clear that each option has its strengths and trade-offs. Reserved Instances can deliver slightly higher discounts - up to 75% off on-demand pricing [1] - but demand careful planning and consistent management. Savings Plans, on the other hand, offer slightly lower discounts but make up for it with greater flexibility and ease of use.

Pros and Cons of Each Approach

Each option comes with its own operational strengths and challenges, depending on how your business operates.

Reserved Instances are ideal for environments where predictability is key. They ensure capacity in high-demand areas [13], offer the highest savings (especially with three-year Standard RIs), and even allow resale of unused capacity through the AWS Marketplace (though fees apply) [1]. However, they are less adaptable to changing needs, non-cancellable once purchased, and require ongoing monitoring to ensure they’re fully utilised [1][13].

Savings Plans, by contrast, resolve many of the rigidity issues tied to Reserved Instances. Discounts are applied automatically without the need for active management, they cover multiple services like EC2, Lambda, and Fargate, and they allow you to adapt your infrastructure without losing cost benefits [1]. On the downside, the maximum discount is slightly lower than Standard RIs, capacity reservations aren’t included by default, and there’s no option to resell unused commitments. Unused spending commitments can also reduce overall savings.

If your workloads are consistent and long-term, Reserved Instances might be the better choice. They’re especially suitable for businesses with stable infrastructure needs that require guaranteed capacity and maximum savings, provided you’re comfortable with the ongoing management involved [12]. On the other hand, if your workloads vary across instance types, regions, or services, or if you want a simpler, hands-off discounting approach, Savings Plans are likely the better fit [12].

For many businesses, a hybrid approach can be the most effective. By combining Reserved Instances for predictable workloads with Savings Plans for more variable demands, you can strike a balance between savings and the flexibility needed to adapt to changing requirements.

How to Optimise Reserved Instances and Savings Plans

Getting the most out of Reserved Instances and Savings Plans isn't just about buying commitments - it’s about taking a strategic approach. To truly maximise savings, you need to understand your usage patterns, establish effective governance, and fine-tune your strategy with accurate data.

Assessment and Planning

Start by evaluating your current usage and predicting future needs. The golden rule here is: Always right-size, then reserve. This means selecting the most efficient instance type that meets your performance requirements before committing to long-term purchases [14]. Use cloud management tools to conduct a thorough audit and identify underused resources.

Amazon CloudWatch is a valuable tool for tracking hourly usage. It helps you adjust commitments to match business cycles and handle traffic spikes. By analysing usage patterns, you can calculate potential savings. Make sure to define key metrics, implement proper tagging (such as cost allocation tags), and review your plans regularly to align with your business goals [14].

Once you've mapped out your usage and business cycles, the focus shifts to managing your commitments effectively to achieve optimal savings.

Portfolio Management

A flexible approach to your commitment portfolio is key. Start by purchasing Savings Plans in smaller increments and combine them with Convertible Reserved Instances (RIs). Review your usage data regularly, and use automated scaling policies to adjust resources dynamically and eliminate waste [15][17][18]. For applications with fluctuating baselines, gather usage data first, then commit to Savings Plans gradually [3].

Flexibility in your reservation strategy reduces the risk of overcommitting. This allows you to adjust coverage levels as needed, ensuring your compute demand is met while maximising savings [17]. Pay special attention to resource usage in pre-production environments, where instances are often short-lived, to further refine your optimisation efforts [16].

A centralised approach to Cloud Financial Management can also amplify your savings by leveraging economies of scale [16].

Best Practices for UK Businesses

For UK businesses, local factors like regulatory requirements and seasonal demand spikes should play a role in your strategy. For instance, plan capacity for peak periods such as Christmas or the end of the tax year, when financial services often see increased activity.

Using consolidated billing through AWS Organisations can be a game-changer. By grouping costs into a single parent account, you can reach higher spending tiers faster and qualify for volume discounts [16]. Consolidating multiple accounts under one billing arrangement enhances these benefits even further [15].

Building a cost-conscious culture is equally important. Teams across departments should be educated on effective cost management. Each revenue-generating unit should handle its own cost monitoring, budgeting, and forecasting to ensure accountability [16].

For expert advice, consulting firms like Hokstad Consulting can provide tailored audits and strategies. They claim to reduce expenses by as much as 30–50% through in-depth audits and strategic planning. Their no savings, no fee model ensures you only pay if they deliver measurable cost reductions.

Finally, choose your cloud regions wisely. Balancing price differences with low latency for UK customers is essential [15]. You can also cut data transfer costs by keeping resources within the same region or availability zone [15]. Allocate time to evaluate new AWS services through proof-of-concept projects, so your strategy stays up-to-date as AWS evolves [16].

Conclusion

For businesses aiming to manage cloud costs effectively, Reserved Instances and Savings Plans are indispensable. They can deliver savings of up to 72% compared to on-demand pricing - a compelling figure that underscores their value [20]. But as this guide has shown, achieving these savings isn't as simple as just committing to a plan.

Success hinges on careful planning and ongoing monitoring. These tools work best when used together, not as alternatives. To make the most of them, you’ll need to analyse your usage patterns, evaluate your infrastructure needs, and find the right balance between Standard Reserved Instances (offering up to 72% discounts), Convertible Reserved Instances (up to 66% discounts), and Savings Plans [19].

Planning is critical here - missteps like over-committing or under-utilising resources can quickly erode potential savings [1].

For UK businesses already feeling the pinch of cloud expenses, seeking expert advice can make all the difference. Specialists like Hokstad Consulting (https://hokstadconsulting.com) can help you sidestep common mistakes, establish strong governance, and fine-tune your approach as your infrastructure evolves.

Both Reserved Instances and Savings Plans bring distinct advantages when used wisely. Regularly reviewing and adjusting your strategy ensures you continue to maximise your returns as your business grows and changes. With the right strategy in place, these tools can deliver long-term savings that make a real impact on your bottom line.

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