Reserved Instances and Savings Plans in AWS - Step-by-Step Execution

Process Flow - Reserved Instances and Savings Plans

Start: Need to save AWS costs

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Choose between Reserved Instances or Savings Plans

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Reserved Instances

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Select instance type

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Commit 1-3 years

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Pay upfront or partial

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Get discounted rate

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Use AWS resources

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Save money on usage

This flow shows how you start with a need to save AWS costs, choose between Reserved Instances or Savings Plans, commit to a term, pay upfront or partially, and then get discounted rates while using AWS resources.

Execution Sample

AWS

1. Choose Reserved Instance for t3.medium
2. Commit for 1 year, partial upfront
3. Use instance for 730 hours
4. Pay discounted hourly rate

This example shows buying a Reserved Instance for a specific instance type, committing for 1 year with partial upfront payment, then using the instance and paying a lower hourly rate.

Process Table

Step	Action	Input/Selection	Result/Effect
1	Select Savings Option	Reserved Instance	Discount applies to specific instance type
2	Commit Term	1 year	Commitment period set
3	Payment Option	Partial Upfront	Partial payment made upfront
4	Use Resource	t3.medium instance 730 hours	Discounted hourly rate applied
5	Calculate Cost	On-demand rate $0.0416/hr	Discounted rate $0.026/hr applied
6	Total Cost	730 hours * $0.026	Total $18.98
7	End	Usage complete	Savings realized compared to on-demand

💡 Usage completed for the term, cost savings realized compared to on-demand pricing

Status Tracker

Variable	Start	After Step 1	After Step 2	After Step 3	After Step 4	Final
Option	None	Reserved Instance	Reserved Instance	Reserved Instance	Reserved Instance	Reserved Instance
Term (years)	0	0	1	1	1	1
Payment	None	None	None	Partial Upfront	Partial Upfront	Partial Upfront
Instance Type	None	t3.medium	t3.medium	t3.medium	t3.medium	t3.medium
Hourly Rate	$0.0416	$0.0416	$0.0416	$0.0416	$0.026	$0.026
Hours Used	0	0	0	0	730	730
Total Cost	$0	$0	$0	$0	$18.98	$18.98

Key Moments - 3 Insights

Why does the hourly rate drop after selecting a Reserved Instance?

Because Reserved Instances provide a discounted hourly rate for the specific instance type committed, as shown in execution_table step 5 where the rate changes from $0.0416 to $0.026.

Does the payment happen all upfront or partially in this example?

Partial upfront payment is made as selected in step 3, which means some cost is paid upfront and the rest is charged at the discounted hourly rate.

What happens if you use the instance less than the committed hours?

You still pay for the full commitment term, so savings depend on full usage; this is implied in the total cost calculation in step 6.

Visual Quiz - 3 Questions

Look at the execution_table, what is the hourly rate applied after step 5?

A $0.026

B $0.0416

C $0.030

D $0.050

💡 Hint

Check the 'Hourly Rate' column in execution_table at step 5

At which step is the payment option selected?

A Step 1

B Step 2

C Step 3

D Step 4

💡 Hint

Look for when 'Partial Upfront' payment is chosen in execution_table

If the term was changed to 3 years, how would the total cost change assuming same usage?

A Total cost would stay the same

B Total cost would triple

C Total cost would be less per year

D Total cost would double

💡 Hint

Refer to variable_tracker 'Term (years)' and 'Total Cost' relationship

Concept Snapshot

Reserved Instances and Savings Plans help save AWS costs by committing to usage for 1-3 years.
Reserved Instances apply discounts to specific instance types.
Savings Plans apply discounts to compute usage broadly.
You pay upfront, partial upfront, or monthly.
Discounted rates apply during usage, lowering your bill.
Commitment means you pay even if you use less.

Full Transcript

Reserved Instances and Savings Plans are AWS options to save money by committing to use resources for 1 to 3 years. You start by choosing which saving option fits your needs. Reserved Instances give discounts on specific instance types, while Savings Plans offer more flexibility across compute usage. You select a term length and payment option, such as partial upfront payment. When you use the resources, you pay a discounted hourly rate instead of the full on-demand price. This lowers your overall AWS bill. The commitment means you pay for the term even if you use less, so planning usage is important. This visual trace shows step-by-step how selecting options affects rates and costs, helping beginners understand how savings happen.

Practice

1. What is the main benefit of using AWS Reserved Instances or Savings Plans?

easy

A. They provide free support from AWS

B. They increase the speed of your instances

C. They reduce cloud costs by committing to usage over time

D. They automatically scale your instances

Solution

1. Step 1: Understand the purpose of Reserved Instances and Savings Plans

   Both are pricing models that offer discounts in exchange for a commitment to use AWS resources for a period.

2. Step 2: Identify the main benefit

   The main benefit is cost savings by committing to usage, not performance or support features.

3. Final Answer:

   They reduce cloud costs by committing to usage over time -> Option C

4. Quick Check:

   Cost savings = C [OK]

Hint: Focus on cost savings through commitment [OK]

Common Mistakes:

• Thinking Reserved Instances improve instance speed
• Confusing cost savings with free support
• Assuming automatic scaling is included

2. Which of the following is the correct way to describe a Savings Plan in AWS?

easy

A. A flexible pricing model that applies to compute usage regardless of instance type

B. A commitment to use a specific instance type in a specific region

C. A one-time payment for on-demand instances

D. A free trial period for new AWS users

Solution

1. Step 1: Recall Savings Plan characteristics

   Savings Plans offer flexible discounts that apply to compute usage regardless of instance type or region.

2. Step 2: Match the correct description

   A flexible pricing model that applies to compute usage regardless of instance type correctly describes Savings Plans as flexible pricing models, unlike Reserved Instances which are specific.

3. Final Answer:

   A flexible pricing model that applies to compute usage regardless of instance type -> Option A

4. Quick Check:

   Savings Plans = Flexible pricing = A [OK]

Hint: Savings Plans are flexible, not tied to instance type [OK]

Common Mistakes:

• Confusing Savings Plans with Reserved Instances
• Thinking Savings Plans are one-time payments
• Assuming Savings Plans are free trials

3. Given the following scenario: You purchase a 1-year Standard Reserved Instance for an m5.large instance in us-east-1. Later, you launch an m5.xlarge instance in the same region. How does the Reserved Instance discount apply?

medium

A. The discount applies partially, covering the m5.large portion of the m5.xlarge

B. The discount applies to any instance type in any region

C. The discount does not apply to the m5.xlarge instance

D. The discount applies fully to the m5.xlarge instance

Solution

1. Step 1: Understand Reserved Instance scope

   Standard Reserved Instances apply to specific instance types and regions. m5.large is different from m5.xlarge.

2. Step 2: Check discount application

   The discount partially applies because m5.xlarge is double the size of m5.large; the RI covers the equivalent of one m5.large unit.

3. Final Answer:

   The discount applies partially, covering the m5.large portion of the m5.xlarge -> Option A

4. Quick Check:

   RI discount partial for larger instance = D [OK]

Hint: RI discounts apply by instance size equivalence [OK]

Common Mistakes:

• Assuming full discount on different instance sizes
• Thinking discount applies across regions
• Believing discount applies to any instance type

4. You configured a Savings Plan but notice your billing does not reflect the expected discount. Which of the following is the most likely cause?

medium

A. You purchased a Reserved Instance instead of a Savings Plan

B. You purchased a Compute Savings Plan but launched instances outside supported services

C. You did not enable multi-region support in your Savings Plan

D. You launched instances only in the free tier

Solution

1. Step 1: Understand Savings Plan coverage

   Compute Savings Plans apply discounts to supported compute services like EC2, Fargate, and Lambda.

2. Step 2: Identify billing mismatch cause

   If instances run on unsupported services or outside the plan scope, discounts won't apply, causing billing to be higher than expected.

3. Final Answer:

   You purchased a Compute Savings Plan but launched instances outside supported services -> Option B

4. Quick Check:

   Discounts apply only to supported services = A [OK]

Hint: Check if instances use supported services for Savings Plans [OK]

Common Mistakes:

• Confusing Reserved Instances with Savings Plans
• Assuming multi-region must be enabled always
• Ignoring service eligibility for discounts

5. Your company has a steady workload running 10 m5.large instances in us-west-2 for 24/7 use. You want to minimize costs while keeping flexibility to change instance types later. Which option is best?

hard

A. Purchase 1-year Standard Reserved Instances for 10 m5.large instances

B. Use On-Demand instances only to keep flexibility

C. Purchase 3-year Convertible Reserved Instances for 10 m5.large instances

D. Purchase a 1-year Compute Savings Plan covering the equivalent usage

Solution

1. Step 1: Analyze workload and flexibility needs

   The workload is steady and predictable, so committing to usage saves money. Flexibility to change instance types is important.

2. Step 2: Compare options

   Standard RIs are less flexible; Convertible RIs allow changes but require longer commitment. Compute Savings Plans offer flexibility across instance types and families with 1-year commitment.

3. Step 3: Choose best option

   Compute Savings Plan balances cost savings and flexibility best for this scenario.

4. Final Answer:

   Purchase a 1-year Compute Savings Plan covering the equivalent usage -> Option D

5. Quick Check:

   Flexibility + cost savings = Compute Savings Plan = B [OK]

Hint: Choose Savings Plans for flexibility with steady workloads [OK]

Common Mistakes:

• Choosing Standard RIs despite flexibility needs
• Ignoring commitment length impact
• Assuming On-Demand is cheapest for steady workloads