Table of content
AWS Knowledge 🔮

ELI5: What are AWS Reserved Instances and How Do They Work?

ELI5: What are AWS Reserved Instances and How Do They Work?

Cloud costs and the cloud cost optimization, with vast possibilities, can sometimes get a little complex, particularly when it comes to understanding cost and savings options. One such concept in the Amazon Web Services (AWS) world is "Reserved Instances" (RIs) that was introduced in late 2009, almost 3 years after AWS launched. They provide the biggest savings but are indeed are a more complex discount instrument in AWS cost management than AWS Savings plans that launched a decade later in 2019, we wrote more about that here. So...

What exactly are RIs

Let's take a real-world analogy to help simplify the concept.

Imagine you're planning a week-long trip and you need a hotel room. You have two options. First, you could walk into the hotel every day and book a room. This is flexible but can be quite expensive and there's always a risk that rooms might not be available. Your second option is to book the room for the entire week upfront. This way, not only are you guaranteed a room each day, but the hotel, pleased with your commitment, offers you a discount. By reserving in advance, you save money and eliminate daily uncertainty.

Reserved Instances in AWS work quite similarly to our hotel booking scenario.

When you run applications on AWS, they run on virtual servers known as instances. AWS charges for these instances by the hour, similar to booking a hotel room day-by-day. However, if you know that you'll need a certain server capacity continuously for a long period, you can "reserve" that capacity upfront - hence the term Reserved Instances. AWS compute usage, Much like pre-booking your hotel room for a week, with RIs, you commit to using a specific instance type for a one or three-year term. In return for this commitment, AWS offers you a significant discount (up to 75%) compared to on-demand instance pricing.

What services do RIs cover

Reserved Instances (RIs) cover a variety of AWS services. However, the specific services that RIs cover may vary and it's best to check the latest AWS documentation for the most accurate information.

Here are some of the AWS services that typically offer Reserved Instances:

  • Amazon EC2
  • Amazon RDS
  • Amazon Redshift
  • Amazon ElastiCache
  • Amazon DynamoDB

When should you use Reserved Instances

The answer to this largely depends on your requirements. If your usage is continuous, predictable, and you're confident it will remain so for the next one to three years, then RIs can offer significant cost savings.

But remember, just as booking a hotel room in advance comes with a commitment (you'd still have to pay even if you didn't stay the night), RIs also come with a contractual commitment. You pay for the entire term, whether or not you use the instances.

One more exciting aspect of AWS RIs is the flexibility they provide. AWS allows you to sell unused RIs in a marketplace if your requirements change, somewhat like selling your hotel reservation if your travel plans change.

What are the types of RIs

Standard Reserved Instances: Standard RIs apply to a specific instance family, OS and tenancy. For example, if you purchase a Standard RI for an m6g.large instance, you cannot use the same Standard RI for an m7g.large instance. Standard Reserved Instances can save you up to 75%.

Convertible Reserved Instances: Convertible RIs can be applied to different instance families, OSs and tenancies. For example, if you purchase a Convertible RI for an m6g.large instance, you can use the same Convertible RI for an m7g.large instance. Convertible Reserved Instances can save you up to 75%.

Scheduled Reserved Instances: These are available to launch within the time windows you reserve. This option allows you to match your capacity reservation to a predictable recurring schedule that only requires a fraction of a day, a week, or a month.

All three can be applied to different Availability Zones, but they only apply to the Region where they were purchased. You cannot use in the US East (N. Virginia) region a Reserved Instance purchased in the EU (Ireland) region.

How to calculate cost savings with RIs

  1. Identify your steady-state workloads: These are the instances that run 24/7 and are always needed for your application to function.
  2. Check the On-Demand cost for these instances: You can find this information on the Amazon EC2 pricing page.
  3. Check the Reserved Instance cost for these instances: This information is also available on the Amazon EC2 pricing page. Remember, Reserved Instances are paid upfront for a 1-year or 3-year term.
  4. Calculate the difference between the On-Demand cost and the Reserved Instance cost: This will give you the cost savings for choosing Reserved Instances over On-Demand instances.

How to purchase AWS Reserved Instances

  1. Sign in to the AWS Management Console and open the Amazon EC2 console at
  2. In the navigation pane, choose "Reserved Instances".
  3. Choose "Purchase Reserved Instances".
  4. In the "Purchase Reserved Instances" dialog box, set the options to match the configuration of the instance that you want to reserve.
  5. Choose "Search".
  6. Select the Reserved Instance offering that you want to purchase.
  7. Choose "Add to cart".
  8. Review the contents of your shopping cart, and then choose "Purchase".

How does Pump help manage and save using Reserved Instances

Pump helps manage and save using Reserved Instances (RIs) in several ways:

  1. RI Consumption: Pump ensures that the RIs you purchase are fully utilized. If an RI is not consumed in a particular month, Pump sells that RI in the next 30 days, ensuring you don't lose money on unused RIs.
  2. RI Tracking: You can see the RIs purchased by you categorized separately from those bought by Pump. This helps you keep track of your own RIs and their utilization.
  3. Savings Tracking: Pump makes it simple to track RI savings on the Pump app for anyone to directly understand their savings from this category.

To view your savings from Reserved Instances (RIs) on the AWS cost management console, you can use the AWS Cost Explorer tool. Sign in to the AWS Management Console > Cost Explorer > RI Coverage tab. Choose the time period you want to view (e.g., last month, last quarter, custom date range). In the "Savings Plans and Reserved Instances" section, you'll see a breakdown of your RI utilization and savings. The differences between AWS savings plans and AWS reserved instances are further covered here.

In conclusion, understanding Reserved Instances is crucial for effective cost management in AWS. It's like planning your vacation in advance: if you're sure about your plans, pre-booking your hotel can lead to considerable savings. In the cloud, if you're confident about your long-term usage, RIs can significantly reduce your costs while ensuring capacity is always available for your applications.

So next time you hear the term "Reserved Instances", just think about booking a hotel for your trip. It's all about planning, saving, and having the peace of mind of secured capacity for your cloud journey.

Get started with Pump for FREE

No contracts, no credit card needed to sign up.
Get Started
Text us @ 650-468-0297
Get started with Pump for Free