AWS Pricing Models: A Comparative Guide

3 min readApr 21, 2024

When it comes to cloud services, understanding the pricing models is crucial for optimizing costs and managing resources effectively. Amazon Web Services (AWS) offers several pricing options to cater to different needs and usage patterns. Here’s a breakdown of the main pricing models: On-demand, Savings Plans, Reserved Instances, and Dedicated Hosts.

On-Demand Pricing

On-demand pricing is the most flexible AWS pricing model. You pay for compute capacity by the hour or second (minimum of 60 seconds) with no long-term commitments(1). This model is ideal for applications with short-term, irregular workloads that cannot be interrupted. It’s also suitable for testing new applications where you’re unsure of the required capacity or duration.

Savings Plans

Savings Plans are a way to save up to 72% compared to on-demand pricing in exchange for a commitment to a consistent amount of usage (measured in $/hour) for a 1 or 3-year period(2). There are two types of Savings Plans:

Compute Savings Plans: Offer flexibility and apply to any EC2 instance regardless of region, instance family, operating system, or tenancy(3).
EC2 Instance Savings Plans: Provide the deepest discounts and are applied to a specific instance family within a region(4).

Savings Plans are suitable for steady-state usage and can significantly reduce costs for long-term workloads.

Reserved Instances

Reserved Instances (RIs) provide a discount of up to 72% compared to on-demand pricing and are best suited for applications with steady-state usage(5). RIs are purchased for a 1 or 3-year term, with payment options that include all upfront, partial upfront, or no upfront. The more you pay upfront, the greater the discount. RIs can also provide a capacity reservation, ensuring availability for your applications.

Spot Instances

Spot Instances let you take advantage of unused Amazon EC2 computing capacity at steep discounts — up to 90% off the On-demand price(6). The pricing for Spot Instances is variable, based on supply and demand, and is known as the Spot price.

They offer significant cost savings and are particularly useful for workloads that are stateless, fault-tolerant, or have flexible start and end times.

Dedicated Hosts

Dedicated Hosts are physical servers fully dedicated to your use, allowing you to address compliance requirements and use your existing server-bound software licenses(7). They offer visibility and control over instance placement and are billed per host, not per instance. Dedicated Hosts are ideal for situations where you need to use software licenses that require a dedicated physical server.

Choosing the Right Model

The choice between these pricing models depends on your specific needs:

On-Demand: Best for unpredictable workloads without upfront costs.
Savings Plans: Ideal for consistent workloads with significant long-term savings. They are ideal for users with a predictable overall spend but unpredictable usage across different services, regions, or instance types.
Reserved Instances: Suitable for steady-state workloads with the option for capacity reservation. They are best for users with predictable usage patterns for specific instance types in a particular region.
Spot Instances: can be interrupted by AWS with a two-minute warning if the capacity is needed elsewhere. This makes them less suitable for critical jobs that cannot tolerate interruptions. Another consideration point for the spot price is that they fluctuate based on demand and supply, so it requires monitoring and management to ensure cost-effectiveness. Unlike Savings Plans and Reserved Instances, Spot Instances provide the highest potential savings but come with the trade-off of potential interruptions and price variability. They are best suited for workloads that can handle interruptions and don’t require a fixed amount of compute capacity.
Dedicated Hosts: Necessary for compliance and licensing requirements on dedicated servers.

By understanding and comparing these AWS pricing models, you can make informed decisions that align with your budget and operational requirements.

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