How AWS Reserved Instance Discounts Are Applied

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AWS Reserved Instance discounts can be confusing and opaque. We talk to AWS customers who don’t know what instances their discounts are being applied to — or even whether their Reserved Instances are being utilized. Here are some notes to help you understand AWS RIs.

What Do Reserved Instances Actually Reserve?

There is an understandable misconception that a “reserved instance” always reserves capacity — a specific VM that is “yours” for the month. If that’s what you want, you’re looking for a Zonal Reserved Instance (locked to a specific instance type and Availability Zone) or an AWS Capacity Reservation. Both of these are specific to an availability zone and instance attributes, including the instance type, tenancy, and platform/OS. If you purchase a “zonal” reserved instance, you will also get a capacity reservation in the designated availability zone, but regional reserved instances do not reserve capacity. Standalone capacity reservations do not provide a discount — but then, they do not require a 1-year or 3-year contract, either. Note that even a Capacity Reservation is not guaranteed to be associated with a specific instance unless that instance was launched into that reservation.

Reserved Instances might be better named something to the effect of “pre-paid credits”. You are not purchasing a specific instance, but rather, a discount that will be applied to instances in your account, as long as they match certain attributes.

How AWS Reserved Instance Discounts Are Applied

Ultimately, you won’t know which specific instance your RI discount is applied to until you look at your bill, and if you want to find out, you’ll sift through hundreds of thousands of rows on a Cost and Usage Report. And there may well be hundreds of rows for any single RI, because the instance that receives the reserved instance discount can actually change minute to minute. Or at least, by the fraction of the hour.

The “scope” of your Reserved Instance affects how the discount is applied. Zonal Reserved instances are for a specific availability zone, reserve capacity in that zone, and do not have instance size flexibility. Therefore, if you have reserved an m5.large in Availability Zone us-east-1a, your discount will only apply to that specific instance type, size, and zone. Zonal RIs are less expensive than Regional RIs — but since they are also much more constrained, it’s easier for them to accidentally go unused if you do not have a matching instance running.

Meanwhile, a Regional Reserved instance does not reserve capacity, but it does allow flexibility in both availability zone and instance size within the same family. That’s where the normalization factor comes in. Obviously, you wouldn’t want to be charged the same amount for a t3.nano as a t3.2xlarge. The normalization factor balances these sizes, so that a reservation for a t3.xlarge could count for one t3.xlarge instance, or two t3.large instances, or 32 t3.nano instances, or 50% of a t3.2xlarge, or some combination of sizes. The benefit is applied from the smallest to largest instance size within the family.

If you use consolidated billing, your Reserved Instance discount will be applied first to applicable usage within the purchasing account, then to other accounts in the organization.

Should You Even Use AWS Reserved Instances?

AWS is aware of this confusion — which is part of the reason they released Savings Plans last year. Instead of the instance size and normalization factor calculations, you simply have a spend commitment, which is flexible across instance family, size, OS, tenancy or AWS Region, and also applies to AWS Fargate and AWS Lambda usage. Hopefully, Savings Plans will be coming soon for the other resources that support RIs, such as RDS, Elasticahce, and so on.

Savings plans can provide the same level of discount, without the rigidity of Reserved Instances, so we recommend them. If you already have Reserved Instance commitments, just ensure that you are fully utilizing them, or else (for EC2 RIs) sell them on the RI marketplace.

And consider whether you have resources that just don’t need to be running 24×7. Turning them off can save more than either of these options.

Originally published at www.parkmycloud.com on June 16, 2020.

Written by

CEO of ParkMyCloud

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