Our customers are always looking for ways to save on their Amazon Web Services (AWS) bills. This post is the first in a series of ways to save on AWS.

Today, we’ll look at how you can save using AWS EC2 Reserved Instances. If you prefer, watch the video version of this post:

How do AWS EC2 Reserved Instances work?

AWS Reserved Instances are purchased on a contract. You pay now to reserve capacity for a set period of time of one or three years.

With that agreement, you agree to pay that contract either upfront, partially upfront, or monthly. In turn, AWS agrees to give you a discount, which increases the more you pay up front and the longer the time period.

A few things to keep in mind:

  1. Your Reserved Instance contracts are specific to a Region, Availability Zone, Instance Type (e.g. m4large), Platform Type (the OS, such as Linux or Windows), and Tenancy.
  2. It’s a “Use it or Lose it” situation. It’s like a gift card that has a monthly fee, which by the time you get around to using it, is left with a $0 balance.
  3. Managing Reserved Instance contracts can be very complex. In fact, a whole industry has grown up around tracking Reserved Instances.
  4. Because Reserved Instances are specific to Region, Availability Zone, Instance Type, and so forth, AWS automatically matches the instances you launch to the contracts you have in place. As long as you match those contracts, you’ll be credited with the Reserved Instance benefit that you paid for. However, if there is no match, your contract, every hour or every day, gets decremented down. Your ROI decreases every hour or every day.

The nightmare scenario, of course, is if your users aren’t launching matching types. In a sense, then, you’re paying twice: once for the unused Reserved Instances, and for those new instances.

How much do EC2 Reserved Instances Save?

Take a look at the graph below for a comparison of how much Reserved Instances save you over on-demand:

AWS EC2 reserved instances savings over on-demand

The graph on the left is for a one-year commitment; the graph on the right is for a three-year commitment. You’ll notice there’s no green bar for “no payment upfront” for the three-year term, because AWS only allows that option for the one-year term.

The purple bar shows the on-demand pricing in both. Notice that for the one-year commitment, you’ll save 31-43%, and that savings improves as you pay more upfront. For the longer three-year commitment, the savings improves to between 60 and 63%.

However, the problem is that AWS has a history of dropping their prices. In 2014, they dropped prices by 30%. If that happens, then the savings you hope to achieve evaporates, because you’re locked into these commitments.

See how little the difference is if we assume another price cut of that size:

AWS ec2 reserved instances savings over on-demand with price cut

AWS also recently released another purchasing option, Scheduled Reserved Instances, which can provide a 5-10% savings over On-Demand instances. Read our full post on Scheduled Reserved Instances to read more about their benefits and limitations.

Reserved Instances can be a good fit for predictable production environments, but for non-production, the savings are not worth the commitment.

Stay tuned for the next part of our AWS Cost-Saving Series, coming soon!


About Dale Wickizer

Dale brings over 30 years of technology and engineering experience to his role as co-founder and Chief Technology Office (CTO) at ParkMyCloud. After experiencing the problem of growing cloud spend first-hand, and discovering that there was no simple way to solve it, Dale teamed up with co-founder Jay Chapel to create ParkMyCloud to solve the problem of cloud waste. Before founding ParkMyCloud, Dale was the CTO of the U.S. Public Sector at NetApp, Inc. where he set the future technology and product direction and managed key customer relationships. Prior to NetApp, Dale was an Associate Partner and IT Infrastructure Architect at Accenture, where he helped large enterprises plan and execute IT transformations, data center consolidations, and application deployments. Dale holds both a Bachelor's and a Masters Degree in Electrical Engineering from the Georgia Institute of Technology. He and his wife, Barbara, reside in Springfield, VA.