How to Buy AWS Reserved Instances and Save Big on EC2 Costs

Many businesses unknowingly overspend on EC2. What if you could reduce your costs by as much as 72%? Reserved Instances (RIs) offer a straightforward way to optimize your EC2 spend by locking in discounted rates through long-term commitments.

While many AWS users begin with On-Demand instances for their flexibility and no upfront costs, the pay-as-you-go model can become expensive as usage increases. By committing to a one or three-year term with Reserved Instances, organizations can secure a much lower rate, all while maintaining the performance they need.

In this blog, we’ll cover what Reserved Instances are, explain their different types and payment options, and walk you through the steps for purchasing them via the AWS Management Console.

What are AWS Reserved Instances (RIs)?

AWS Reserved Instances (RIs) are a pricing option for Amazon EC2 that provides significant cost savings by committing to a specific level of usage for 1 or 3 years. By making this commitment, you can receive discounts of up to 72% compared to On-Demand pricing.

Rather than paying for EC2 instances on a pay-as-you-go basis, Reserved Instances offer a way to reserve capacity in advance, locking in lower rates. The savings vary depending on factors such as instance type, region, term length, and payment method.

Reserved Instances are not actual EC2 instances, but are billing discounts that automatically apply when your active instances match the parameters of your reservation, such as instance type, region, and operating system.

 Learn more in the AWS Reserved Instances documentation.  

Types of Reserved Instances

There are two main types of Reserved Instances, each offering different levels of savings and flexibility:

1. Standard RIs

• Provide the highest discount (up to 72%).
• Less flexible, as they are tied to specific instance attributes, such as family, region, operating system, and tenancy.
• Best suited for steady and predictable workloads.

2. Convertible RIs

• Offer a lower discount (up to 54%).
• Allow modifications to instance type, operating system, or tenancy during the term.
• Ideal for businesses with workloads that may change over time but still want to achieve cost savings.

Pricing Options

RIs can be purchased using one of three payment models:

• All Upfront: Pay the entire cost upfront and receive the maximum possible discount.
• Partial Upfront: Pay a portion upfront and the rest in monthly installments to balance savings with cash flow. 
• No Upfront: No initial payment; pay monthly over the term with the lowest discount.

When to Use Reserved Instances (RIs)?

Reserved Instances are best for stable, long-term workloads with predictable usage. Typical scenarios include:

• Continuous production servers (e.g., web, app, or database layers)
• Applications or services that run continuously
• Organizations aiming for cost predictability
• Workloads with specific capacity or regional needs

Prerequisites for Purchasing AWS RIs

Before purchasing AWS Reserved Instances, ensure you have the following:

• An active AWS account with the necessary IAM permissions (ec2:PurchaseReservedInstancesOffering).
• A clear understanding of your current EC2 usage and long-term infrastructure needs.
• Knowledge of the desired instance type, operating system, tenancy, and region.
• Availability of budget for your selected payment option (All Upfront, Partial Upfront, or No Upfront).

Steps to Purchase Reserved Instances (RIs)

Step 1: Access the Reserved Instances Purchase Page

• Sign in to the AWS Management Console, navigate to the EC2 Dashboard, and select "Reserved Instances" from the sidebar.

• On the Reserved Instances page, click Purchase Reserved Instances to start the configuration.

Step 2: Configure the Reservation Parameters

Specify the following details based on your requirements:

• Platform: Select the operating system (e.g., Linux/UNIX, Windows).
• Instance Type: Choose the EC2 instance size and family (e.g., t3.medium, m5.large).
• Term: Select a 1- or 3-year commitment for discounted pricing.
• Offering Class: Choose between Standard (fixed) or Convertible (flexible) reservations.
• Tenancy: Select between shared hardware or Dedicated physical servers.
• Scope: Choose a Region or specific Availability Zone.
• Payment Option: Select from All Upfront, Partial Upfront, or No Upfront payment methods.

After entering the aforementioned details, click Search to view the available Reserved Instance offerings and prices.

Step 3: Review and Add to Cart

Click Add to Cart after configuring your preferred RI offering. You can add multiple configurations to the cart before proceeding with the purchase.

Step 4: Final Review and Purchase

Once all the desired RIs are in the cart, click View Cart to review the selections, then click Order All to finalize the purchase.

Monitor Reserved Instance Usage and Utilization

After purchase, track Reserved Instance utilization with these tools:

• AWS Cost Explorer → Reserved Instances: Provides detailed utilization metrics.
• Reserved Instances Utilization Reports: Displays detailed information on RI usage compared to active instances.
• AWS Budgets: Set usage or cost thresholds to receive alerts when actual usage deviates from the expected levels.

Regular monitoring ensures that usage aligns with your reservations, maximizing cost savings.

Best Practices for Using Reserved Instances

• Regularly analyze usage patterns using AWS Cost Explorer and Trusted Advisor.
• Select the right instance size and region for your workloads to optimize cost efficiency.
• Monitor Reserved Instance utilization to ensure reservations are in line with actual usage and prevent waste.
• Consider Zonal Reserved Instances when you need to reserve capacity in specific Availability Zones.
• Choose Convertible RIs for greater flexibility in adapting to changing workloads.

Conclusion

Reserved Instances offer savings of up to 72% compared to On-Demand pricing with long-term commitments. Although they require upfront planning and payment, they don't require changes to existing infrastructure.

By selecting the right RI type, payment option, and term length, businesses can significantly optimize their AWS spending. Ongoing monitoring ensures that Reserved Instances continue to provide value over time.