AWS Savings Plan vs Reserved Instances: Which Option is Better for Optimizing Cloud Costs?

This article thoroughly explores each approach and offers recommendations on which to choose based on your needs.

When it comes to cloud computing, one of the best options is AWS and its multiple tools for managing this modern technology solution, including cost-optimizing strategies such as Savings Plans and Reserved Instances.

Both options are powerful tools for reducing operational expenses, but understanding their differences, advantages, and use cases is critical to making informed decisions.

What are AWS Reserved Instances?

Reserved Instances (RIs) are a long-term financial commitment to use EC2 instances. Instead of paying on-demand fees, RIs allow you to commit for 1 or 3 years, getting discounts of up to 72%. This model is ideal for consistent and predictable workloads.

Key features of Reserved Instances:

• Time commitment: You have the option of 1- or 3-year contracts. Longer contracts offer higher discounts.
• Limited flexibility: They are tied to specific regions, instance types, and usage configurations.
• Three payment options: Full payment upfront (All Upfront), Partial payment upfront (Partial Upfront), and No payment upfront (No Upfront), with lower discounts.
• Custom reservations: These can be standard (tied to a specific instance type) or convertible (allowing you to swap between different instance types within the same family).

RIs are particularly useful for projects with high load stability, such as constantly used business applications, databases, or development and production servers that run 24/7.

What is the AWS Savings Plan?

The Savings Plan is a newer, more flexible option that AWS introduced to optimize costs. Like RIs, it is based on a long-term usage commitment (1 or 3 years), but with greater flexibility in applying the discount. Instead of reserving specific instances, the Savings Plan is designed to scale across different services.

Key features of the Savings Plan:

• Flexibility of usage: Discounts apply to EC2, AWS Fargate, and AWS Lambda instances.
• Hourly spend-based commitment: You commit to a level of spend (in dollars) per hour, not to a specific instance type.
• Multi-region support: Allows use in different regions without additional configuration.
• Lower operational complexity: No technical adjustments are required for changes to instances or services.

The Savings Plan is ideal for businesses looking for flexibility and scalability. For example, if an organization runs applications that constantly change configuration, or uses containers and serverless functions, the Savings Plan can offer the same financial benefits as RIs with fewer restrictions.

Comparison: Savings Plan vs Reserved Instances

While both models aim to reduce costs, their application varies considerably. Below we discuss the main differences:

1. Flexibility

The Savings Plan offers much greater flexibility than Reserved Instances. It allows you to switch between services such as EC2, Lambda, and Fargate, as well as between instance types and regions. RIs, on the other hand, are more restricted, making them ideal only if needs are highly predictable.

2. Discounts

Both models offer significant discounts. RIs can achieve up to 72% savings, while Savings Plans provide up to 66%. However, RIs' deeper discounts require strict commitments and less flexibility.

3. Scalability

The Savings Plan is best for scalable and dynamic environments, where workloads change frequently. RIs, on the other hand, are designed for stable and static environments.

4. Ease of management

The Savings Plan is easier to manage because it doesn't require advanced technical planning. RIs, on the other hand, require more analysis to ensure that reserved instances match the needs of the workload.

Which one should you choose?

The decision between the Savings Plan and Reserved Instances depends on several factors:

Ideal Scenarios for Reserved Instances:

• Stable and predictable workloads: For example, web servers that operate 24/7 or critical databases.
• Organizations with predefined budgets: If you are clear about the type of instance, region, and configuration you will use.

Ideal Savings Plan Scenarios:

• Flexible and variable environments: Applications with fluctuating demands, such as microservices, containers, or serverless functions.
• Growing businesses: Companies that expect frequent changes to their infrastructure.
• Multi-region or multi-service use: If you want to maximize your discounts without committing to a fixed configuration.

Economic outlook and recent studies

According to a study published by Flexera in its “2024 State of the Cloud Report,” 82% of companies consider cloud cost optimization as their top priority. AWS Savings Plans have been widely adopted for their ease of use and flexibility, while RIs remain the preferred choice in specific scenarios.

An analysis by CloudForecast concludes that the Savings Plan significantly reduces operational complexity compared to RIs, offering an agile approach for modern businesses.

Both the Savings Plan and Reserved Instances have their pros and cons. The key to making the most of your AWS investment is to analyze your usage patterns and future needs. At our software development agency, we have a team specialized in cloud architectures that can help you design a customized strategy to optimize your costs on AWS.

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