Mastering AWS Reserved Instances for Cost Savings

AWS Reserved Instances provide a billing discount applied to on-demand instances in your account when you commit to using an instance for a 1 or 3 year term. They are best suited for steady-state usage patterns and provide:

• Significant cost savings - up to 72% compared to on-demand pricing
• Capacity reservation - in a specific Availability Zone
• Payment flexibility - with Convertible RIs to change instance attributes

Reserved Instances allow you to reserve capacity for your applications and save substantially compared to running instances on-demand, in exchange for a term commitment.

Benefits of Reserved Instances

AWS Reserved Instances provide several key benefits:

Cost Savings

The main benefit of Reserved Instances is significant cost savings compared to on-demand instances. The discount can be:

• Up to 72% for Standard RIs
• Up to 54% for Convertible RIs

The exact discount percentage depends on:

• Term commitment - 1 or 3 years
• Payment option - All Upfront, Partial Upfront, No Upfront
• Instance attributes like type, region, OS, tenancy

Longer terms and more upfront payment provide higher discounts.

Capacity Reservation

When you purchase RIs for a specific Availability Zone, it provides a capacity reservation for that zone. This gives you additional confidence in your ability to launch the number of instances you have reserved when needed.

Capacity reservation ensures instance capacity is available to launch Reserved Instances when you need them.

Payment Flexibility

Convertible RIs provide the flexibility to change the following attributes during the term:

• Instance families
• Operating system
• Tenancy

This allows you to optimize your RI usage while still benefitting from discounted pricing, as long as the exchange results in RIs of equal or higher value.

Standard RIs do not provide this flexibility, but you can modify the Availability Zone, instance size, and networking type using the ModifyReservedInstances API.

So Convertible RIs give you more options to change the RI attributes if your needs change during the 1-3 year term.

Regional Flexibility

When you purchase a region-scoped RI, the discount automatically applies to any matching usage across Availability Zones and instance sizes in that region.

This makes it easy to optimize your discount in a region without being locked into a specific zone.

Summary of Benefits

In summary, the key benefits of Reserved Instances are:

• Significant cost savings with discounts up to 72%
• Capacity reservation when scoped to an Availability Zone
• Payment flexibility with Convertible RIs
• Regional flexibility with region-scoped RIs

Leveraging Reserved Instances strategically can provide big cost optimizations for steady-state workloads by reserving capacity in advance.

How Reserved Instances Work

AWS Reserved Instances provide discounted hourly rates when the attributes of your on-demand instance usage match the attributes of your purchased RIs.

The key instance attributes that determine RI discount eligibility are:

• Instance type - e.g. m4.large
• Region - e.g. us-east-1
• Operating system - e.g. Linux, Windows
• Tenancy - default or dedicated

Additionally, RIs can be scoped to a specific Availability Zone to provide a capacity reservation.

Matching Instance Attributes

When you launch an on-demand instance, AWS checks for any matching RIs you have purchased based on the attributes above.

If a match is found, the RI’s discounted hourly rate is automatically applied to that instance.

For example, if you purchase an RI for:

• m4.large instance
• Linux OS
• us-east-1 region
• Default tenancy

And you launch a matching on-demand instance with those same attributes, your RI’s discounted rate applies.

Regional Flexibility

If you purchase a region-scoped RI without specifying an Availability Zone, the RI discount automatically applies to any usage in that region with matching attributes.

For example, if you buy an m4.large Linux RI in us-east-1, the discount can apply to:

• 1 x m4.large instance in us-east-1a
• 2 x m4.xlarge instances in us-east-1b
• 4 x m4.small instances in us-east-1c

As long as the attributes match, the RI discount applies flexibly across zones and sizes.

Capacity Reservation

When you purchase an RI for a specific Availability Zone, it reserves capacity for you in that zone.

This guarantees you can launch the reserved number of instances when you need to. If the zone runs out of capacity, your RI launches are prioritized.

Application to Bill

After each month, AWS applies the RI discounts to your usage and generates your final bill. Discounts are automatically applied to instances that matched your active RIs.

In this way, Reserved Instance billing discounts provide significant cost savings in exchange for a commitment to instance usage over a 1-3 year term.

Types of Reserved Instances

AWS offers several types of Reserved Instances to match different usage needs:

Standard Reserved Instances

Standard RIs provide the highest discount compared to on-demand pricing, up to 72% off.

They are best suited for steady-state usage patterns where you know you will need an instance for the committment term.

Standard RIs do not provide flexibility to change instance attributes like family, OS, or tenancy. However, you can modify:

• Availability Zone
• Instance size
• Networking type

Using the ModifyReservedInstances API.

Convertible Reserved Instances

Convertible RIs provide discounts up to 54% off on-demand.

The key benefit is the ability to change the following attributes during the term:

• Instance family
• Operating system
• Tenancy

To change attributes, use the ExchangeReservedInstances API. The exchange must result in Reserved Instances of equal or greater value.

Convertible RIs are ideal if you want more flexibility to change your RI usage over the 1-3 year term.

Scheduled Reserved Instances

Scheduled RIs allow you to purchase capacity reservations that recur on a schedule during a specified time window.

The schedule can be daily, weekly, or monthly and reservations last for one hour.

Scheduled RIs are good for usage that is periodic in nature like batch jobs, predictable traffic spikes, etc.

You only pay for the windows you reserve, unlike 1-3 year terms for Standard/Convertible RIs.

Reservation Benefits

All RI types provide the following benefits:

• Significant discounts compared to on-demand
• Payment flexibility - All Upfront, Partial Upfront, No Upfront
• Applies to usage across AZs or to a specific AZ
• Share RIs across accounts using Consolidated Billing

Choosing the right RI type depends on your workload needs and how much flexibility you want.

Convertible RIs provide the most flexibility while Standard RIs offer maximum discounts.

Features of Reserved Instances

All Reserved Instance types offer the following core features:

Significant Discounts

The primary benefit of RIs is the significant discount compared to on-demand instance pricing:

• Up to 72% for Standard RIs
• Up to 54% for Convertible RIs

Discounts increase with longer terms and larger upfront payments.

Payment Flexibility

You can choose from three payment options when purchasing RIs:

• All Upfront - Pay full amount at purchase
• Partial Upfront - Pay a portion upfront, remaining monthly
• No Upfront - Pay in monthly installments only

More upfront payment = higher discount, but monthly installments allow you to spread payments over time.

Regional Flexibility

Region-scoped RIs provide discounts across AZs and instance sizes in that region automatically.

You don’t have to predict exactly which AZs you will use the RIs in.

AZ Capacity Reservations

AZ-scoped RIs reserve capacity for launching instances when you need them in that specific AZ.

This guarantees instance capacity in that AZ.

Share RIs Across Accounts

If you use Consolidated Billing, RIs can be shared across accounts in the organization allowing for easy RI optimization.

Standard vs. Convertible Features

Standard RIs and Convertible RIs have some key differences:

| Feature | Standard RI | Convertible RI | |-|-|-|
| Max Discount | 72% | 54% | | Change Attributes | Limited | Yes | | Modify AZ, size, networking | Yes | Yes | | Change family, OS, tenancy | No | Yes |

Standard RIs offer maximum discounts but less flexibility. Convertible RIs provide discounts up to 54% but allow you to change RI attributes via exchange.

Choosing Standard or Convertible depends on your need for attribute flexibility vs maximizing discount percentage.

Reserved Instances provide significant discounts, payment flexibility, and capacity reservations to meet a variety of workload needs. Consider the features and tradeoffs when choosing your optimal RI strategy.

Purchasing Reserved Instances

When purchasing Reserved Instances, there are some key considerations:

Analyze Usage Patterns

Analyze your usage history to determine ideal RIs:

• Which instance families, types and sizes are used consistently?
• What is the typical hourly usage per day/week/month?
• Are there steady-state or predictable workloads?

This helps determine which instance attributes to target and capacity needs.

Evaluate Discount Options

Consider the discount options:

• Term length - 1 year or 3 years
• Payment options - All Upfront, Partial Upfront, No Upfront
• Offering Class - Standard or Convertible

Longer terms and more upfront payment provide higher discounts.

Convertible RIs allow more flexibility. Evaluate tradeoffs.

Choose Instance Attributes

Choose the instance attributes based on analysis:

• Instance type and size
• Region
• Operating system - Linux, Windows, etc.
• Tenancy - Default or Dedicated
• Availability Zone - Optional for capacity reservation

Purchase RIs

Purchase RIs through:

• AWS Console
• AWS CLI
• SDKs
• AWS Marketplace

Use controls like limits and tagging to manage RIs.

Monitor Usage

Continue monitoring usage patterns and Reserved Instance utilization over time.

• Are RIs being under or over utilized?
• Do some RIs need to be exchanged or modified?
• Does more capacity need to be reserved?

Adjust your RI purchases accordingly based on the data.

Leverage Savings Plans

Reserved Instances discount committed capacity while Savings Plans discount usage directly.

Evaluate if Savings Plans can provide additional savings on top of RIs for certain workloads.

Analyzing needs, choosing options wisely, and monitoring usage are key to maximizing Reserved Instance benefits.

Standard vs Convertible Offering Classes

When purchasing RIs, you can choose between Standard and Convertible offering classes:

Standard Reserved Instances

• Provide the highest discounts - up to 72% off on-demand
• Best for steady-state usage patterns
• Cannot be exchanged for different RIs
• Can only modify Availability Zone, instance size, networking
• Bind you to one instance family and OS

Standard RIs are ideal if you want maximum cost savings and don’t need flexibility.

Convertible Reserved Instances

• Provide discounts up to 54% off on-demand
• Can be exchanged for different RIs of equal or higher value
• Allow changing instance family, OS, and tenancy
• Good if you want the option to change RI attributes
• Discounts are lower than Standard RIs

Convertible RIs provide the flexibility to change RI attributes via exchange.

Key Differences

When to Choose Each

• Standard - For maximum discount and no need to change attributes
• Convertible - If you want the flexibility to change RI attributes

Evaluate your workload needs and how much flexibility you require before deciding between Standard or Convertible RIs.

Standard RIs provide higher cost savings while Convertible RIs offer more flexibility. Choose the offering class that best aligns to your business needs. Monitor utilization over time and adjust as needed.

Reserved Instance Pricing and Cost Considerations

Several key factors affect Reserved Instance pricing and costs:

Instance Attributes

RI pricing varies based on the instance attributes you specify:

• Instance type and size
• Region
• Operating system
• Tenancy - default or dedicated

Larger instance sizes generally have higher upfront costs.

Term Commitment

The term length impacts the discount percentage:

• 1 year terms receive discounts up to 40%
• 3 year terms receive discounts up to 60%

Longer terms equal higher discounts.

Payment Options

The payment option also affects the potential savings:

• All Upfront - Highest discount
• Partial Upfront - Medium discount
• No Upfront - Lowest discount

More money paid upfront results in better discounts.

Offering Class

Standard RIs provide higher maximum discounts than Convertible RIs.

RI Discounts

Typical RI discounts off on-demand pricing:

Upfront Costs

Upfront costs vary based on attributes like instance type, payment option, and term length. Larger instance sizes have higher upfront costs.

Analyze expected usage and attribute needs to pick the most cost-optimal RI configuration.

Optimizing Costs with Reserved Instances

There are several best practices for optimizing your costs with Reserved Instances:

Right Size RIs

Analyze usage history to right size your RIs based on typical instance types and sizes.

Don’t over-provision RIs for larger sizes than you need.

Utilize Region Flexibility

Leverage region-scoped RIs to maximize discount coverage across AZs without over-reserving capacity.

Re-Evaluate Usage

Periodically re-evaluate instance usage patterns and adjust RIs to match current needs:

• Modify RIs if AZ needs change
• Exchange Convertible RIs if instance types change
• Purchase or modify RIs if capacity needs increase

Optimize Idle RIs

Monitor RI utilization regularly. Idle or under-utilized RIs still incur charges.

Combine with Spot/Savings Plans

Use Spot Instances to supplement RIs for occasional bursting.

Add Savings Plans for workloads with less predictable usage.

Purchase on Reserved Instance Marketplace

Leverage discounted short-term RIs from third-party sellers.

Analyzing usage, monitoring utilization, right-sizing instances, and combining purchasing options allows you to maximize RI benefits and reduce AWS spend. Reserved Instances can provide significant cost savings in AWS when you can commit to consistent instance usage over a 1-3 year term. The key is analyzing your workloads to size RIs appropriately based on steady-state usage patterns.

Conclusion

Standard and Convertible offering classes provide different options for discounts and flexibility. Monitoring utilization over time and adjusting RIs is important to maximize the cost optimization benefits.

Combining RIs with Savings Plans and Spot can further optimize spending. With the proper Reserved Instance strategy based on your workload needs, you can save substantially compared to on-demand and reduce your overall AWS spend.

The key is understanding the RI purchase options and how discounts apply to your on-demand usage. Used effectively, Reserved Instances give you a powerful tool to cut costs for predictable workloads with steady resource requirements.

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Frequently Asked Questions

1. What are Reserved Instances in AWS?

AWS Reserved Instances (RIs) provide discounted hourly rates and capacity reservations for EC2 instances in exchange for a 1 or 3 year commitment. They apply discounts to your on-demand usage to save significantly compared to regular on-demand pricing.

2. How do Reserved Instances work?

RIs automatically apply discounted hourly rates to your on-demand EC2 usage when the instance attributes like type, OS, and region match. RIs scoped to an Availability Zone also provide a capacity reservation.

3. What are the benefits of using Reserved Instances?

Key benefits include:

• Significant cost savings with up to 72% discounts
• Capacity reservations in specific AZs
• Payment flexibility with Partial and No Upfront options
• Ability to change some attributes with Convertible RIs

4. What are the different types of Reserved Instances?

The main types are:

• Standard - Highest discounts, less flexible
• Convertible - Exchange attributes, lower discounts
• Scheduled - Reserve capacity on schedule

5. How much do Reserved Instances cost?

RI pricing depends on attributes, term length, payment option, and offering class. Costs are paid upfront or monthly over the term. More money paid upfront means higher discounts.

6. When should I purchase Reserved Instances?

RIs are best for steady-state, predictable workloads running consistently. Avoid RIs for highly variable or intermittent usage.

7. How do I purchase Reserved Instances?

You can purchase RIs through the AWS Console, CLI, APIs or via AWS Marketplace. Analyze usage history to pick optimal attributes and term.

8. Can I change my Reserved Instances?

Convertible RIs allow exchanging attributes through the term. Standard RIs can modify some attributes like instance size.

9. How can I optimize my Reserved Instance costs?

Best practices: Analyze usage patterns, right size RIs, use regional flexibility, re-evaluate needs over time, combine RIs with Savings Plans and Spot.

10. What happens if I terminate my Reserved Instances?

You must continue paying for the full term, even if terminated early. Re-sell unwanted RIs on the Reserved Instance Marketplace if possible.