EC2 Pricing Models

EC2 offers multiple pricing models, each suited to different usage patterns and commitment levels. Choosing the right model — or combining models — can reduce your compute costs by 60-90% compared to On-Demand pricing. This lesson covers all the major options.

---

Overview of Pricing Models

Model	Commitment	Discount vs On-Demand	Best For
On-Demand	None	0% (baseline)	Unpredictable workloads, short-term, development
Reserved Instances	1 or 3 years	Up to 72%	Steady-state, predictable workloads
Savings Plans	1 or 3 years	Up to 72%	Flexible commitment across instance types
Spot Instances	None	Up to 90%	Fault-tolerant, flexible workloads
Dedicated Hosts	On-Demand or Reserved	Varies	Licensing, compliance, regulatory requirements
Dedicated Instances	On-Demand pricing + fee	Small premium	Hardware isolation without host management
Capacity Reservations	None	0% (On-Demand rates)	Guaranteed capacity in a specific AZ

---

On-Demand Instances

How It Works

You pay for compute capacity by the second (Linux) or by the hour (Windows), with no upfront commitment, long-term contract, or minimum spend.

When to Use

• Unpredictable workloads — you cannot forecast usage patterns
• Short-lived instances — development, testing, proof-of-concept
• First-time workloads — establish your baseline before committing
• Applications with spiky demand — handle traffic bursts without over-provisioning

Pricing Example

Instance Type	On-Demand (us-east-1)	Monthly (730 hrs)
t3.micro	~$0.0104/hr	~$7.59
m5.large	~$0.096/hr	~$70.08
c5.xlarge	~$0.17/hr	~$124.10
r5.2xlarge	~$0.504/hr	~$367.92

Prices are approximate and vary by Region. Always check the EC2 Pricing page for current rates.

---

Reserved Instances (RIs)

How It Works

You commit to using a specific instance type in a specific Region for 1 or 3 years. In return, you receive a significant discount compared to On-Demand.

RI Payment Options

Payment Option	Upfront Cost	Hourly Rate	Discount
All Upfront	Full payment at purchase	$0	Highest discount (~72%)
Partial Upfront	~50% at purchase	Reduced hourly rate	Moderate discount (~65%)
No Upfront	$0	Discounted hourly rate	Lowest RI discount (~36%)

RI Types

Type	Flexibility	Discount
Standard RI	Locked to instance type, AZ/Region, OS, tenancy	Higher discount
Convertible RI	Can change instance family, OS, tenancy, and scope	Lower discount (~54%)

Standard RIs can be sold on the EC2 Reserved Instance Marketplace if your needs change.

RI Scope

Scope	Behaviour
Regional	Discount applies to any matching instance in any AZ within the Region; provides capacity priority (not guarantee)
Zonal	Discount applies only in the specified AZ; guarantees capacity reservation in that AZ

When to Use RIs

• Steady-state workloads — databases, core application servers, bastion hosts
• Predictable capacity — you know you will need this instance type for 1-3 years
• Workloads that cannot tolerate interruption (unlike Spot)

---

Savings Plans

How It Works

Savings Plans are a flexible pricing model that offers discounts (similar to RIs) in exchange for a commitment to a consistent amount of usage (measured in $/hour) over 1 or 3 years.

Savings Plan Types

Type	Flexibility	Discount
Compute Savings Plans	Any instance family, size, AZ, Region, OS, tenancy; also applies to Fargate and Lambda	Up to 66%
EC2 Instance Savings Plans	Locked to a specific instance family and Region; any size, OS, tenancy	Up to 72%
SageMaker Savings Plans	Applies to SageMaker instances	Up to 64%

Savings Plans vs Reserved Instances