This chapter covers two of the most important AWS cost optimization mechanisms: Reserved Instances (RIs) and Savings Plans (SPs). For the SOA-C02 exam, understanding the differences, use cases, and how to choose between them is critical—cost optimization questions make up approximately 20% of the exam, and RI/SP topics appear in roughly 5-7% of questions. You will need to know the discount structures, flexibility trade-offs, payment options, and how each interacts with other services like AWS Organizations and Cost Explorer. This chapter provides a deep dive into both mechanisms, including step-by-step guidance on purchasing and managing them, common exam traps, and real-world deployment scenarios.
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Imagine you are a movie streaming service that offers both a Season Pass and Pay-Per-View (PPV) options. A Season Pass gives you access to all episodes of a series for a flat upfront fee, providing a significant discount per episode compared to buying each one individually. You commit to the entire series, regardless of how many times you watch each episode. PPV, on the other hand, lets you pay for each episode you actually watch, at full price, with no commitment. Now, consider that the streaming service also offers a more flexible 'Bundle Pass' that covers multiple series but at a slightly higher discount rate than PPV, and you can apply it to any series you choose without naming them upfront. In AWS terms: Reserved Instances (RIs) are like the Season Pass—you commit to a specific instance family, size, and region for a 1- or 3-year term, and you get a large discount (up to 72% off On-Demand). Savings Plans (SPs) are like the Bundle Pass—you commit to a dollar amount of compute spend per hour (e.g., $10/hour) for 1 or 3 years, and the discount applies to any eligible compute usage across EC2, Lambda, and Fargate, automatically. The key difference: RIs require you to specify exact instance attributes upfront, while SPs give you flexibility to change instance families, sizes, regions (with some limitations), and even services. If you over-commit on an RI, you waste money; with an SP, unused commitment is still charged, but you can adjust future usage more easily.
What are Reserved Instances and Why Do They Exist?
Reserved Instances (RIs) are a billing discount applied to EC2 instance usage. They are not physical instances; rather, they represent a commitment to a specific instance configuration (e.g., m5.large in us-east-1) for a 1- or 3-year term. In exchange, you receive a significant discount (up to 72% off On-Demand pricing) on the hourly usage rate for that instance type. RIs exist to provide customers with a predictable, lower-cost option for steady-state workloads. They were introduced early in AWS's history to encourage long-term commitments, giving AWS revenue predictability and passing savings to customers.
What are Savings Plans and Why Do They Exist?
Savings Plans (SPs) were introduced in 2019 as a more flexible alternative to RIs. Instead of committing to a specific instance configuration, you commit to a dollar amount of compute spend per hour (e.g., $10/hour) for a 1- or 3-year term. This commitment applies to any eligible compute usage across EC2, AWS Lambda, and AWS Fargate. SPs offer similar discounts to RIs (up to 72% for Compute SPs, slightly less for EC2 Instance SPs) but with greater flexibility. SPs exist to address the rigidity of RIs—customers often found it difficult to predict exact instance families and sizes for long periods, leading to wasted spend or management overhead.
How Reserved Instances Work Internally
When you purchase an RI, you specify:
Instance family (e.g., m5)
Instance size (e.g., large)
Tenancy (default or dedicated)
Region (e.g., us-east-1)
Availability Zone (optional; if specified, you get capacity reservation)
Term: 1 year or 3 years
Payment option: All Upfront, Partial Upfront, or No Upfront
Once purchased, the RI is applied to matching usage on an hourly basis. AWS uses a billing system that matches the RI attributes to running instances. If you have an m5.large RI in us-east-1, any m5.large instance running in that region (regardless of AZ) will receive the discounted rate for up to the number of instances equal to the RI quantity. If you specify an AZ, the discount applies only to instances in that AZ, and you also get a capacity reservation (guarantee that the instance will launch).
Key points:
RIs are region-scoped unless you specify an AZ.
RIs can be shared across accounts in an AWS Organization via the Consolidated Billing feature.
RIs can be modified (e.g., change instance size within the same family, change AZ, change scope) but with limitations.
RIs cannot be exchanged for a different instance family or region without selling on the Reserved Instance Marketplace.
How Savings Plans Work Internally
Savings Plans come in two types:
Compute Savings Plans: Apply to any EC2 instance, any region, any size, any tenancy, plus Lambda and Fargate usage. Discount up to 66%.
EC2 Instance Savings Plans: Apply to a specific instance family in a region (e.g., m5 in us-east-1), regardless of size or tenancy. Discount up to 72%.
When you purchase an SP, you commit to an hourly spend amount (e.g., $10/hour). AWS calculates the discounted price for each eligible usage type. For example, if an m5.large On-Demand price is $0.10/hour, and the SP discount is 40%, the SP rate is $0.06/hour. When you run an m5.large, the first $0.06 is charged under the SP commitment, and the remaining $0.04 is charged at On-Demand rates (if you exceed the commitment). The SP commitment is measured in dollars per hour; any unused commitment is still billed (you pay for what you committed, even if you don't use it).
Key differences from RIs:
No capacity reservation unless you explicitly purchase a Capacity Reservation separately.
Flexibility to change instance families, sizes, regions (Compute SP) or sizes within a family (EC2 Instance SP).
Automatically applies to any eligible usage across accounts in an Organization.
No need to modify or exchange; the discount follows your usage.
Payment Options and Discount Rates
Both RIs and SPs offer three payment options:
All Upfront: Pay the entire term cost upfront. Highest discount (e.g., 72% for 3-year RI).
Partial Upfront: Pay a portion upfront, then a reduced hourly rate. Moderate discount.
No Upfront: No upfront payment, but the hourly rate is higher than Partial. Lowest discount among committed options.
For RIs, the discount also depends on the term (1-year vs 3-year) and the instance type. For SPs, the discount depends on the type (Compute vs EC2 Instance), term, and payment option. Generally, EC2 Instance SPs offer slightly higher discounts than Compute SPs because they are less flexible.
How to Purchase and Manage
Reserved Instances: Purchase via AWS Console -> EC2 -> Reserved Instances -> Purchase Reserved Instances. You can also use the AWS CLI:
aws ec2 purchase-reserved-instances-offering --instance-count 1 --reserved-instances-offering-id <offering-id>To view offerings:
aws ec2 describe-reserved-instances-offerings --instance-type m5.large --product-description "Linux/UNIX (Amazon VPC)" --offering-class standardSavings Plans: Purchase via AWS Console -> AWS Cost Management -> Savings Plans -> Purchase. CLI:
aws savingsplans create-savings-plan --savings-plan-offering-id <offering-id> --commitment 10.0 --term 1year --payment-option All UpfrontTo view offerings:
aws savingsplans describe-savings-plans-offerings --plan-type ComputeInteraction with AWS Organizations
Both RIs and SPs can be shared across accounts in an AWS Organization when using Consolidated Billing. For RIs, you enable sharing in the RI console (or via CLI: aws ec2 modify-reserved-instances). For SPs, sharing is automatic; all accounts in the organization benefit from the SP discount. However, the management account pays for the SP commitment, and the discount is applied to eligible usage across member accounts.
Comparison Summary
Flexibility: SPs (Compute) > SPs (EC2 Instance) > RIs (Standard) > RIs (Convertible)
Discount: RIs (Convertible) < RIs (Standard) ≈ SPs (EC2 Instance) > SPs (Compute)
Capacity Reservation: Only with RIs that specify AZ; not with SPs.
Scope: RIs are region/AZ-specific; SPs can be region-specific (EC2 Instance) or global (Compute).
Modifications: RIs can be modified within limits; SPs require no modification—they automatically apply.
Exam-Relevant Details
Standard RI vs Convertible RI: Standard RIs offer the highest discount but cannot be exchanged for a different instance family. Convertible RIs offer lower discounts but can be exchanged for other families, sizes, or even OS (with some limitations). The exam may ask which type to choose based on flexibility needs.
RI Marketplace: You can sell unused Standard RIs on the Reserved Instance Marketplace. Convertible RIs cannot be sold.
Savings Plans do not provide capacity reservations. If you need guaranteed capacity, you must purchase a Capacity Reservation separately (which can be combined with SPs for discount).
Regional vs Zonal RIs: Regional RIs apply to any AZ in the region; Zonal RIs apply to a specific AZ and provide capacity reservation. The exam tests the difference.
Payment options: All Upfront gives the best discount; No Upfront gives the least. The exam may ask which is best for short-term projects (No Upfront) versus long-term steady state (All Upfront).
Term: 3-year terms offer higher discounts than 1-year.
Savings Plans cover Lambda and Fargate (Compute SPs only). RIs do not cover these services.
Unused commitments: With RIs, if you don't run matching instances, you lose the discount (but you still paid upfront). With SPs, unused commitment is still billed at the committed rate; you pay for what you committed.
Common Exam Scenarios
Scenario: A company has unpredictable EC2 usage across multiple instance families. Which should they choose? Answer: Compute Savings Plan (most flexible).
Scenario: A company runs a consistent number of m5.large instances 24/7 and needs guaranteed capacity. Which should they choose? Answer: Zonal Standard RI (best discount and capacity reservation).
Scenario: A company wants to cover Lambda usage as well. Which should they choose? Answer: Compute Savings Plan (covers Lambda).
Scenario: A company has Convertible RIs and wants to change to a different instance family. Can they? Answer: Yes, Convertible RIs can be exchanged.
Scenario: A company wants to sell unused RIs. Which type? Answer: Standard RIs (Convertible cannot be sold).
Analyze Usage Patterns
Use AWS Cost Explorer or AWS Budgets to review historical compute usage. Identify steady-state workloads that run 24/7 (e.g., production web servers, databases) versus variable or burst workloads. For steady-state, RIs or SPs are cost-effective. For variable, consider SPs for flexibility. Also, check if you use Lambda or Fargate—if so, Compute SPs are the only option that covers those services. Determine the instance families, sizes, regions, and tenancy used most frequently. This analysis directly informs the commitment decision.
Choose Between RI and SP
Based on usage patterns and flexibility needs, decide whether to purchase RIs, SPs, or a combination. If you need capacity reservations and have predictable instance types, choose Zonal RIs. If you want maximum discount for a specific instance family but with size flexibility, choose EC2 Instance SPs or Standard RIs. If you need cross-service coverage (EC2, Lambda, Fargate) and regional flexibility, choose Compute SPs. Remember: RIs require exact attribute matching; SPs automatically apply to any eligible usage within the plan's scope.
Select Term and Payment Option
Choose 1-year or 3-year term based on workload longevity. 3-year offers higher discounts but requires longer commitment. For payment, All Upfront gives the highest discount but requires large upfront capital; Partial Upfront balances cost and cash flow; No Upfront requires no upfront but has the least discount. For exam: All Upfront is best for stable, long-term workloads with available budget; No Upfront is suitable for short-term projects or when cash flow is constrained. Note that No Upfront is only available for 1-year terms for some RI types.
Purchase the Commitment
For RIs: In the EC2 console, navigate to Reserved Instances, click 'Purchase Reserved Instances', select the offering (instance type, tenancy, platform, term, payment option, scope), specify quantity, and complete purchase. For SPs: In the Cost Management console, go to Savings Plans, click 'Purchase Savings Plan', choose plan type (Compute or EC2 Instance), term, payment option, and hourly commitment amount (e.g., $10/hour). Confirm. After purchase, the discount is automatically applied to matching usage within minutes.
Monitor and Optimize
After purchase, regularly monitor utilization via Cost Explorer or the RI/SP utilization reports in the AWS Console. For RIs, check if unused capacity exists (e.g., you have 5 RIs but only run 3 instances). You can modify RIs (change AZ, size within family) or sell on the RI Marketplace. For SPs, monitor the utilization percentage—if it's consistently low, consider reducing the commitment at renewal. If utilization is high, you may want to increase commitment. Also, ensure that RIs are shared across accounts in the Organization if needed.
Enterprise Scenario 1: E-commerce Platform with Predictable Traffic A large e-commerce company runs a cluster of 100 m5.large instances 24/7 for its production web tier. The workload is steady-state with occasional spikes during sales events. The company needs cost savings and capacity guarantees. Solution: Purchase 100 Zonal Standard RIs for m5.large in us-east-1a with 3-year All Upfront to get the maximum discount (72%) and capacity reservation. For the spike periods, they use On-Demand instances or Spot Instances. They also purchase a Compute Savings Plan to cover additional instances that might be launched in other instance families (e.g., c5.large for data processing) and to cover Lambda functions used for order processing. This hybrid approach maximizes savings while maintaining flexibility. Common misconfiguration: Not enabling RI sharing across accounts, causing some accounts to pay On-Demand rates while the RI account has unused capacity.
Enterprise Scenario 2: SaaS Provider with Diverse Workloads A SaaS provider uses a mix of EC2 instances (various families and sizes), AWS Lambda, and AWS Fargate for its microservices architecture. The workload is dynamic, with services scaling up and down based on demand. The company wants to reduce costs but cannot predict exact instance types. Solution: Purchase a Compute Savings Plan with a 1-year Partial Upfront commitment of $50/hour. This covers all EC2, Lambda, and Fargate usage, automatically applying discounts regardless of instance family or region. The company avoids RIs because of their inflexibility. They also use Savings Plans utilization reports to adjust commitment at renewal. Common pitfall: Not understanding that Compute SPs have a slightly lower discount than EC2 Instance SPs, so they could save more if they had predictable instance families.
Enterprise Scenario 3: Media Company with Seasonal Workloads A media company runs video transcoding jobs that require massive compute capacity for 4 months a year, using c5.4xlarge instances. The rest of the year, usage is minimal. They need cost savings but cannot commit to a 1-year or 3-year term for the full capacity. Solution: They use a combination of Spot Instances for the bulk of the workload and On-Demand for critical jobs. They do not purchase RIs or SPs because the commitment does not align with seasonal usage. Instead, they use AWS Budgets to set alerts. However, they might consider a No Upfront Compute SP if they have a baseline of transcoding year-round (e.g., 10 instances). The exam tests the concept that RIs and SPs are only cost-effective for steady-state or predictable usage; for seasonal, Spot and On-Demand are better.
What SOA-C02 Tests The exam objectives under Domain 6 (Cost Optimization) include: - 6.2: Implement cost optimization strategies (e.g., Reserved Instances, Savings Plans, Spot Instances). - 6.3: Identify and implement cost-effective compute solutions.
Specifically, you need to know:
The difference between Standard and Convertible RIs.
The difference between Compute and EC2 Instance Savings Plans.
When to use each based on flexibility needs.
How payment options affect discount and cash flow.
That RIs can provide capacity reservations (Zonal only).
That SPs cover Lambda and Fargate (Compute only).
How to modify RIs and sell on the Marketplace.
That RI sharing is available in Consolidated Billing.
Common Wrong Answers and Traps 1. Trap: 'Savings Plans provide capacity reservations.' Reality: Only Zonal RIs provide capacity reservations. SPs do not guarantee capacity. Candidates often confuse the discount mechanism with capacity guarantee. 2. Trap: 'Convertible RIs have the highest discount.' Reality: Standard RIs have the highest discount (up to 72%); Convertible RIs have lower discounts (up to 54%) because they are more flexible. 3. Trap: 'Compute Savings Plans apply to any EC2 instance in any region, including Spot Instances.' Reality: Compute SPs apply to On-Demand and Fargate/Lambda usage, but NOT to Spot Instances. Spot has its own pricing. The exam may ask if SPs cover Spot—answer is no. 4. Trap: 'You can exchange a Standard RI for a different instance family.' Reality: Standard RIs cannot be exchanged; only Convertible RIs can be exchanged. Standard RIs can be modified within the same family (e.g., m5.large to m5.xlarge). 5. Trap: 'No Upfront payment option gives the highest discount.' Reality: All Upfront gives the highest discount. No Upfront gives the lowest discount among committed options.
Numbers and Values to Memorize - Discount range: RIs up to 72%, SPs up to 72% (EC2 Instance) or 66% (Compute). - Terms: 1 year or 3 years. - Payment options: All Upfront, Partial Upfront, No Upfront. - RI modification limits: Can change AZ, size within family, scope (regional to zonal or vice versa), but not family or region (except Convertible). - RI Marketplace: Only Standard RIs can be sold. - SP commitment: Measured in dollars per hour (e.g., $10/hour).
Edge Cases - If you have a Regional RI and you stop/start an instance, the RI still applies as long as the instance attributes match. - If you purchase an RI in a specific AZ but later the instance is moved to another AZ, the RI discount still applies (capacity reservation is lost but discount remains for the matching instance in the new AZ if it's a Regional RI? Actually, if zonal RI, discount only applies in that AZ; if you move, you lose discount. This is a common edge case.) - SPs cover usage at the discounted rate up to the commitment; any usage beyond the commitment is charged at On-Demand rates. - Unused SP commitment is still billed; you pay for what you committed, even if you don't use it.
How to Eliminate Wrong Answers - If a question mentions 'capacity reservation', eliminate SP options because they do not provide capacity reservation. - If a question asks for the highest discount, look for Standard RI or EC2 Instance SP with 3-year All Upfront. - If a question involves Lambda or Fargate, only Compute SP applies; RIs and EC2 Instance SPs do not cover those. - If a question mentions flexibility to change instance families, choose Compute SP or Convertible RI (but Convertible has lower discount). - If a question mentions selling unused commitments, only Standard RIs can be sold on the Marketplace.
Reserved Instances provide the highest discount (up to 72%) but require commitment to specific instance attributes.
Savings Plans offer flexibility (Compute SP covers any region, instance family, and services) at slightly lower discounts (up to 66% for Compute).
Only Zonal RIs provide capacity reservation; Savings Plans do not.
Compute Savings Plans are the only option that covers Lambda and Fargate usage.
Standard RIs can be sold on the Reserved Instance Marketplace; Convertible RIs cannot.
Payment options: All Upfront gives highest discount; No Upfront gives lowest.
3-year terms offer higher discounts than 1-year terms.
RI sharing is available in AWS Organizations with Consolidated Billing; SP sharing is automatic.
Unused SP commitment is still billed; unused RI capacity is wasted if not used.
For unpredictable workloads, choose Compute Savings Plans; for predictable workloads with capacity needs, choose Zonal Standard RIs.
These come up on the exam all the time. Here's how to tell them apart.
Reserved Instances (Standard)
Commit to specific instance family, size, region, and tenancy.
Up to 72% discount with 3-year All Upfront.
Can provide capacity reservation if purchased with a specific AZ (Zonal RI).
Can be sold on the Reserved Instance Marketplace (Standard only).
Does not cover Lambda or Fargate usage.
Savings Plans (Compute)
Commit to a dollar amount of compute spend per hour.
Up to 66% discount with 3-year All Upfront.
No capacity reservation; use with separate Capacity Reservations if needed.
Cannot be sold; unused commitment is still billed.
Covers EC2, Lambda, and Fargate usage.
Mistake
Reserved Instances are actual instances that you own.
Correct
RIs are billing discounts, not physical instances. You still launch instances as usual; the RI discount is applied to matching usage. You do not get a dedicated server unless you purchase a Dedicated Host or Dedicated Instance separately.
Mistake
Savings Plans give you a fixed discount rate regardless of usage.
Correct
SPs provide a discounted rate up to your committed hourly spend. If you exceed the commitment, the excess is charged at On-Demand rates. The effective discount depends on how much of your usage falls within the commitment.
Mistake
You can use Savings Plans to cover Spot Instance usage.
Correct
Savings Plans only apply to On-Demand, Fargate, and Lambda usage. Spot Instances have their own pricing and are not covered by SPs. To save on Spot, use Spot pricing directly.
Mistake
Convertible RIs offer the same discount as Standard RIs.
Correct
Convertible RIs offer lower discounts (up to 54%) compared to Standard RIs (up to 72%) because they offer more flexibility to exchange for different instance families.
Mistake
You can purchase a Savings Plan for a specific instance ID.
Correct
Savings Plans are not tied to specific instances. They apply to any eligible usage across accounts in the organization. You commit to a dollar amount per hour, not to specific instances.
Reveal each answer, then mark whether you got it right. Score 60%+ to unlock the next chapter.
Yes, if you purchase a Compute Savings Plan, it applies to eligible usage in any region. EC2 Instance Savings Plans are region-specific and only apply to the region you selected at purchase. Compute SPs are the most flexible and cover all regions.
Yes, you can modify a Standard RI to change the Availability Zone, size within the same instance family (e.g., m5.large to m5.xlarge), or scope (regional to zonal or vice versa). You cannot change the instance family or region. Convertible RIs can be exchanged for a different instance family or OS, but the exchange must be for an equivalent or higher value.
Yes, Savings Plans apply to any eligible compute usage regardless of whether it is in EC2-Classic or a VPC. The discount is applied based on the instance type and usage, not the network configuration.
Yes, you can use both. The discount is applied in a specific order: first, any applicable RIs are applied to matching usage; then, any remaining usage is covered by Savings Plans up to the commitment; finally, any usage beyond that is charged at On-Demand rates. This allows you to maximize savings by covering steady-state workloads with RIs and variable workloads with SPs.
Usage beyond the committed hourly amount is charged at standard On-Demand rates. For example, if your commitment is $10/hour and your actual usage has a discounted rate of $8/hour, you will pay $8 under the SP and the remaining $2 is charged at On-Demand. If your usage exceeds the commitment, the excess is fully On-Demand.
Yes, there are RIs specifically for Dedicated Hosts. They work similarly to standard RIs but cover the entire host rather than individual instances. You commit to a specific host type and region.
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