AWS Reserved Instances (RIs) 101: Understanding Cost Savings and Commitments

If you're looking to lower your AWS bill, you'll likely come across AWS Reserved Instances (RIs). This guide provides essential insights about RIs to help you make informed decisions about your AWS usage and savings.

What Are AWS Reserved Instances?

AWS Reserved Instances (RIs) allow you to commit to a specific configuration of instances for a set period in exchange for a discount on the instance cost.

One common misconception is that RIs guarantee capacity. In reality, RIs are a billing construct, not a reservation of capacity—except in the case of EC2 zonal reservations. You are essentially securing a discount, not ensuring AWS will have your instance available when you need it.

A useful way to think of RIs is as a committed use discount, similar to Google Cloud’s pricing model.

Payment Options for Reserved Instances

RIs are available with three payment options, each offering different levels of discounts:

1. All Upfront – Pay for the entire reservation upfront, receiving the highest discount.

2. Partial Upfront – Pay a portion upfront, with the remaining amount billed monthly.

3. No Upfront – No initial payment, but you receive a lower discount rate.

Once purchased, the payment option cannot be changed. The best choice depends on your cash flow and financial strategy:

• Default Choice: No Upfront (keeps cash in your bank account).

• Use Case for Upfront Options: Meeting budgetary requirements or AWS Enterprise Discount Program (EDP) commitments.

Reserved Instance Term Length

AWS offers RIs for one-year or three-year terms. Longer commitments receive higher discounts, but planning for three years can be challenging. A general recommendation is to choose a one-year term unless you have a highly predictable workload.

Services Eligible for Reserved Instances

RIs are available for:

• Amazon EC2 (Elastic Compute Cloud)

• Amazon RDS (Relational Database Service)

• Amazon OpenSearch

• Amazon ElastiCache

• Amazon Redshift

• Amazon DynamoDB (operates similarly but with unique RI-like structures)

Each of these services has distinct configurations, and RIs are not interchangeable between them.

EC2 Reserved Instances: Key Considerations

If you’re considering purchasing EC2 RIs, AWS Savings Plans may be a better alternative due to their flexibility and comparable discounts. However, if you prefer RIs, here are key aspects to consider:

Regional vs. Zonal RIs

• Regional RIs: Apply across all availability zones in a region and offer instance size flexibility.

• Zonal RIs: Locked to a specific availability zone but provide a guaranteed capacity reservation.

Offer Classes

• Standard RIs: Offer the highest discounts but have limited flexibility.

• Convertible RIs: Allow modifications to instance family, tenancy, OS, and payment terms, at the cost of a lower discount.

Tenancy & Operating Systems

• Shared Tenancy: Default, most cost-effective.

• Dedicated Tenancy: Guarantees isolated hardware but costs more.

• Operating System: Commercial OS licenses (e.g., Windows, RHEL, SUSE) impact pricing.

Reserved Instances for Other AWS Services

Amazon RDS RIs

• Instance size flexibility applies (except for SQL Server and Oracle License Included).

• Can switch between multi-AZ and single-AZ deployments while maintaining RI benefits.

Amazon OpenSearch & ElastiCache RIs

• Function similarly to EC2 Standard RIs, meaning they are not flexible in instance type or region once purchased.

Amazon Redshift RIs

• AWS occasionally offers migration incentives for transitioning to newer node types.

Amazon DynamoDB Reserved Capacity

• Unlike other RIs, only partial-upfront payments are available.

• Does not apply to Global Tables or On-Demand tables.

How Reserved Instances Are Applied

RIs automatically apply to instances in a “deepest discount first” manner. This means they optimize for the greatest financial savings rather than specific instances.

AWS provides two key reports to track RI usage:

1. Coverage Report – Measures the percentage of compute covered by RIs (80% is a reasonable goal).

2. Utilization Report – Tracks how much of your RIs are being used (aim for 100%).

Common RI Scenarios

CoverageUtilizationInterpretationLowLowNo RIs or incorrect RIs purchased.LowHighUndercommitted; buy more RIs.HighLowOvercommitted; adjust purchases.HighHighIdeal scenario.

The AWS Reserved Instance Marketplace

AWS provides an RI Marketplace to buy and sell unused EC2 Standard RIs. However, due to several restrictions, it is generally not a viable strategy for most users. Key limitations:

• Only EC2 Standard RIs can be sold.

• 12% fee on sales.

• Requires a U.S. bank account.

• AWS Private Pricing discounts are not eligible for resale.

• Sales are capped at $50,000 or 5,000 RIs per account lifetime.

Should You Use Third-Party RI Management Tools?

Several third-party tools claim to optimize RI purchasing and selling. However, many of these tools charge fees without providing additional savings beyond what AWS already offers. Managing RIs internally is often more cost-effective for most organizations.

Conclusion

AWS Reserved Instances provide significant cost savings but require strategic planning. The key takeaways:

• Use No Upfront RIs by default to maintain cash flow.

• Consider Savings Plans instead of EC2 RIs for more flexibility.

• Choose one-year terms unless workloads are predictable for three years.

• Monitor coverage and utilization reports to optimize cost savings.

• Avoid relying on the RI Marketplace due to its limitations.

By understanding how RIs work and aligning them with your business needs, you can maximize savings while maintaining flexibility in your AWS infrastructure.