How to Optimize Your AWS Costs with Reserved Instances

Introduction to Reserved Instances in AWS;

One of the critical components of managing costs in AWS is understanding and utilizing Reserved Instances (RIs). Reserved Instances allow users to pre-pay for computing capacity for a specific period, typically one or three years. In return, users can receive a significant discount on the hourly rate compared to On-Demand instances.

Reserved Instances are essentially a contract between the user and AWS, where the user commits to using a certain amount of computing capacity for a set period and, in return, receives discounted pricing. This ensures that users have access to the required computing resources at a lower cost, making it an essential tool for optimizing costs on AWS.

Types of Reserved Instances;

There are three types of RIs available on AWS: Standard RIs, Convertible RIs, and Scheduled RIs. Each type has its unique characteristics and benefits that cater to different use cases.

  • Standard RIs provide the most significant savings among all RI types, offering discounts of up to 75% compared to On-Demand pricing. They are best suited for long-term workloads with steady usage patterns, such as production environments or databases that require consistent computing resources.
  • Convertible RIs offer flexibility by allowing users to change instance families within the same instance type category or even exchange them for another type altogether. This allows users to adapt their reserved capacity as their workload changes while receiving discounted rates.
  • Scheduled RIs are explicitly designed for applications with predictable usage schedules. 

Benefits of Using Reserved Instances;

Reserved Instances (RIs) are a powerful cost optimization tool offered by Amazon Web Services (AWS). They allow users to reserve capacity in the AWS cloud for a specific period, significantly saving their overall cloud infrastructure costs. In this section, we will explore the benefits of using Reserved Instances and how they can help organizations optimize their AWS costs.

  1. Cost Savings: The most significant benefit of using Reserved Instances is the cost savings it offers. RIs provide discounts of up to 75% compared to on-demand pricing for EC2 instances and up to 72% for RDS instances. This makes them an attractive option for businesses looking to reduce their AWS spending without compromising performance.
  2. Long-term Commitment: By reserving capacity for a specific period, usually one or three years, users commit to using that instance type within that time frame. This long-term commitment allows AWS to plan and manage its infrastructure more efficiently, resulting in cost savings passed onto customers through discounted pricing.
  3. Predictable Costs: With Reserved Instances, organizations can accurately predict their future AWS costs as they have already committed to a fixed price for the reserved instance type. This helps with budget planning and forecasting and eliminates any surprises regarding monthly billing.
  4. Flexibility: While RI contracts are typically one or three years long, users still have flexibility in choosing which instance types they want to reserve and how many they want to reserve.

How to Purchase and Manage Reserved Instances?

Purchasing reserved instances (RIs) is one of the most effective ways to optimize your AWS costs. RIs allow you to commit to a specific compute capacity for a set term in exchange for a significant discount on your EC2 usage. In this section, we will discuss how to purchase and manage reserved instances effectively.

  1. Understand Your Usage Patterns:

Before purchasing any RIs, it is crucial to understand your organization’s usage patterns. Analyze your current usage and identify which EC2 instances are frequently used and have a consistent workload. This data will help you determine the right type and size of RIs that will provide maximum savings.

  1. Choose the Right Type of RI:

AWS offers various RIs, including Standard, Convertible, and Scheduled. Each type has its unique characteristics and benefits.

  • Standard RIs: These offer the highest discounts but are less flexible as they cannot be modified or exchanged.
  •  Convertible RIs: These provide moderate discounts but allow you to change instance attributes like instance family, operating system, tenancy type, etc.
  • Scheduled RIs: These are ideal for workloads with predictable schedules or peak periods during certain times of the day/week/month.

Carefully evaluate your requirements and choose the type of RI that suits your workload needs.

Tips for Optimizing Your Reserved Instance Usage:

Reserved Instances (RIs) are one of the most cost-effective ways to save money on your Amazon Web Services (AWS) usage. By committing to a certain amount of usage, you can receive significant discounts on your computing resources. However, simply purchasing RIs is not enough – it is crucial to actively optimize their usage to reap the benefits and maximize cost savings fully.

In this section, we will discuss some practical tips for optimizing your Reserved Instance usage:

  • The first step towards optimizing your RIs is understanding your current usage patterns. This involves analyzing your past and projected future workloads. By identifying which instances are consistently used and for how long, you can make informed decisions about which instance types to purchase RIs for.
  • Additionally, you should also consider any upcoming changes or growth in your workload. If you anticipate an increase in demand for certain instance types, it may be beneficial to purchase more RIs for those specific instances.
  • AWS offers a feature called RI exchanges that allows users to trade unused or underutilized RIs for different instance types or regions. This can be extremely useful if your workload changes or you mistakenly purchased an RI that does not align with your actual usage patterns.
  • By utilizing RI exchanges, you can avoid paying for unused or mismatched RIs and optimize them for instances that better suit your needs.

Real-Life Examples of Cost Savings with Reserved Instances:

Reserved Instances (RIs) are a popular cost-saving feature in Amazon Web Services (AWS), designed to help businesses reduce their cloud computing expenses. By committing to a certain amount of usage over a fixed period, RIs offer significant discounts on AWS services compared to the pay-as-you-go pricing model.

To better understand the potential cost savings with Reserved Instances, let’s take a look at some real-life examples from businesses that have successfully optimized their AWS costs with RIs:

1. Netflix:

As one of the world’s leading streaming services, Netflix accounts for a significant portion of internet traffic and relies heavily on AWS for its infrastructure. In 2017, Netflix reported saving nearly $19 million by using Reserved Instances in just one quarter. This was possible because they could accurately predict their usage and commit to long-term RI contracts, resulting in substantial cost savings.

2. Airbnb:

Airbnb is another company that has greatly benefited from using Reserved Instances. They saved around $17 million annually by leveraging RIs across multiple regions and instance types. By utilizing tools like AWS Cost Explorer and third-party optimization solutions, Airbnb was able to identify which instances would be most suitable for RIs and optimize their usage accordingly.

3. McDonald’s:

Even large enterprises like McDonald’s have seen significant cost savings using Reserved Instances on AWS. The fast-food giant saved around $500,000 annually by purchasing RIs for their non-production environments, such as testing and development servers.


After exploring the ins and outs of AWS Reserved Instances, it’s time to determine whether or not they are the right cost-saving solution for your business. While Reserved Instances can provide significant savings on your AWS bill, it is important to carefully consider your usage patterns and business needs before committing to a purchase.

First, let’s recap what we’ve learned about Reserved Instances. They are essentially pre-paid commitments for a specific instance type in a specific region over a set period (1 or 3 years). This means that you will be billed at a discounted rate for that specific instance regardless of whether you use it or not.

Reserved Instances are most beneficial for businesses with consistent and predictable workloads. If your business has fluctuating demand or relies heavily on auto-scaling, purchasing Reserved Instances may not be the best option, as you may end up paying for unused capacity.

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