AWS Savings Plans Explained: Maximize Your Cloud Cost Efficiency

AWS Savings Plans offer up to 72% savings on compute costs while providing flexibility. Learn how they work, types of plans, and strategies to maximize AWS cost efficiency.

In this article, you will learn:

• What Are AWS Savings Plans?
• Types of AWS Savings Plans: A Comprehensive Guide
• How Do AWS Savings Plans Work?
• How to Choose the Right Savings Plan?
• AWS Savings Plans vs. Reserved Instances: Which Is Better for You?
• Advanced Strategies for Maximizing Savings with AWS Savings Plans
• Frequently Asked Questions (FAQs)
• Conclusion

When it comes to AWS cost optimization, businesses often focus on cutting waste and right-sizing resources. However, without a structured pricing strategy, cloud costs can still spiral out of control. That’s where commitment-based pricing models come in.

AWS offers multiple ways to commit to lower cloud costs, but not all of them are flexible enough for modern workloads. Reserved Instances (RIs) were once the go-to choice, but they come with rigid terms that don’t always align with dynamic usage patterns.

This is where AWS Savings Plans change the game. Designed to offer discounts without locking you into specific instance types or regions, they provide a more adaptable way to manage cloud spending. But how do they work, and how do they compare to other pricing models? Let’s break it down.

What Are AWS Savings Plans?

You can achieve discounted rates by committing to a fixed hourly spend over a one- or three-year term, with the flexibility of applying these discounts across eligible AWS services through Savings Plans.

They help businesses reduce cloud costs without the rigid constraints of Reserved Instances, applying savings across instance types, families, and even AWS regions in some cases. With discounts of up to 72% off On-Demand pricing, AWS Saving Plans provide a cost-effective way to manage cloud spending while maintaining the flexibility to scale workloads as needed. By aligning commitments with actual usage patterns, they offer a balance between cost savings and operational agility, making them a strategic choice for long-term cloud optimization.

Types of AWS Savings Plans: A Comprehensive Guide

AWS Savings Plans are available in three types, each offering different levels of flexibility and cost savings. Choosing the right plan depends on workload predictability, required instance flexibility, and service usage patterns.

1. Compute Savings Plans – A flexible pricing model that applies discounts to EC2, AWS Fargate, and Lambda usage, regardless of instance family, region, or operating system.

2. EC2 Instance Savings Plans – A region-specific pricing commitment that provides higher discounts but applies only to a selected EC2 instance family within a specific AWS region.

3. SageMaker Savings Plans – A cost-saving option designed exclusively for Amazon SageMaker workloads, covering ML model training and inference across different instance types.

Each Savings Plan serves a different purpose. Compute Savings Plans offer maximum flexibility, making them ideal for businesses with changing workload patterns. EC2 Savings Plans work best for predictable, long-term workloads that use specific instance families. Meanwhile, SageMaker Savings Plans cater to organizations leveraging machine learning on AWS, ensuring cost-effective AI model development and inference.

By understanding these differences, businesses can select the right plan to optimize cloud costs while maintaining operational efficiency.

How Do AWS Savings Plans Work?

AWS Saving Plans provide cost savings by offering discounted rates in exchange for a committed hourly spend over a one- or three-year term. The key to maximizing savings lies in understanding how commitments, payment options, and duration affect the overall cost structure.

1. Savings Mechanism

Savings Plans apply discounts dynamically at the billing account level. Instead of reserving specific instances, AWS automatically applies the committed spend to eligible usage within the plan’s scope. Any usage beyond the committed amount is billed at standard On-Demand rates.

For example:

• If you commit to $10/hour under a Compute Savings Plan, AWS will apply discounts to eligible services (EC2, Lambda, or Fargate) until the $10/hour threshold is reached.
• If your usage exceeds $10/hour, the extra cost is charged at On-Demand pricing.
• If your usage is below $10/hour, the remaining committed spend is still billed, whether fully utilized or not.

2. Payment Options

AWS Savings Plans offer three payment methods, each affecting cash flow and discount levels:

3. Commitment Duration

AWS Savings Plans are available in one-year and three-year terms. The longer the commitment, the higher the discount.

• One-Year Term – Suitable for businesses that need flexibility or have uncertain long-term cloud usage. While it provides cost savings, the discounts are lower compared to a longer commitment.
• Three-Year Term – Offers the highest savings but requires a longer financial commitment. This is ideal for organizations with stable, predictable workloads that can confidently commit to consistent AWS usage over time.

How to Choose the Right Savings Plan?

Choosing the right AWS Savings Plan requires a balance between cost savings and flexibility. A miscalculated commitment can lead to wasted spend or restricted scaling options. To make an informed decision, consider these key factors.

Tips for Selection

• Analyze historical usage – Review past AWS usage to determine a realistic commitment level. AWS Cost Explorer can help identify usage trends and patterns.

• Consider workload flexibility – If workloads frequently shift across instance types and regions, the AWS Compute Savings Plan is the best fit. If usage is stable within a specific instance family and region, an EC2 Instance Savings Plan offers higher discounts.

• Assess commitment comfort – Three-year terms provide better savings but require a longer commitment. If there’s uncertainty around future workloads, a one-year term offers more flexibility.

• Balance payment options – Full upfront payments maximize savings but require capital investment. If cash flow is a concern, Partial Upfront or No Upfront options may be better.

• Optimize before committing – Right-sizing instances and eliminating unused resources before purchasing a Savings Plan ensures maximum cost efficiency.

Common Mistakes to Avoid

• Overcommitting without analysis – Locking into a high commitment without evaluating actual usage can lead to unnecessary spend.

• Choosing the wrong plan type – An EC2 Instance Savings Plan may not suit workloads that require cross-region flexibility.

• Ignoring workload growth – If cloud usage is expected to scale, undercommitting could lead to paying On-Demand rates for additional usage.

• Focusing only on discounts – The highest discount isn’t always the best choice. Balancing cost savings with workload flexibility is key.

• Not reviewing commitments regularly – AWS usage changes over time. Monitoring Savings Plan utilization helps adjust strategies as needed.

By carefully evaluating these factors, businesses can optimize cloud costs without sacrificing flexibility.

Official AWS savings plans recommendations

AWS has you covered also in their billing console, but make sure that you check the calculations. From our experience it gives the correct numbers that you can really use for buying savings plans, because they are actually little bit less than the actual spend.

1. Sign in to the AWS Management Console.
2. Open the Billing Dashboard (search for "Billing" in the AWS console).
3. In the left-hand menu, find Savings Plans and click on Recommendations to see AWS's suggested Savings Plans based on your historical usage.

4. Adjust the parameters such as term length (e.g., 1 or 3 years), payment options (All Upfront, Partial Upfront, or No Upfront), and compute type (EC2, Fargate, or Lambda) to refine your recommendations.
5. Review the estimated savings and compare them with your actual usage patterns before making a purchase.

AWS Savings Plans vs. Reserved Instances: Which Is Better for You?

Both AWS Savings Plans and Reserved Instances (RIs) provide significant cost savings, but they differ in flexibility and commitment structure.

• Savings Plans offer up to 66% off On-Demand rates while allowing flexibility across instance types, regions (for AWS Compute Savings Plans), and even AWS services like Fargate and Lambda. They are ideal for businesses that need cost savings without being locked into specific configurations.

• Reserved Instances provide up to 72% savings but come with rigid constraints. They require committing to a specific instance type, operating system, and region, making them more suitable for workloads with predictable, stable usage.

In most cases, Savings Plans are the better choice for organizations that need adaptability, while RIs work best for fixed workloads with well-defined infrastructure needs.

Advanced Strategies for Maximizing Savings with AWS Savings Plans

To get the most out of AWS Savings Plans, businesses need more than just a basic commitment. Strategic planning, continuous monitoring, and smart adjustments can help maximize savings while maintaining flexibility.

1. Analyze Usage Patterns Before Committing

Use AWS Cost Explorer and AWS Compute Optimizer to analyze past usage trends. Identify stable workloads suitable for EC2 Instance Savings Plans and variable workloads that benefit from Compute Savings Plans.

2. Right-Size Workloads Before Purchasing

Commitment-based discounts apply to the chosen level of spend, so it's crucial to optimize resource usage first. Downsizing overprovisioned instances and eliminating idle resources ensures that every dollar committed is well spent.

3. Leverage Consolidated Billing

If using AWS Organizations, Savings Plans can be applied across multiple accounts. This allows businesses to pool commitments and maximize discounts across different teams or projects.

4. Monitor and Adjust Utilization Regularly

Use AWS Savings Plans Utilization Reports to track how much of the committed spend is being used. If underutilized, consider shifting workloads or making operational adjustments to fully utilize the plan’s benefits.

5. Combine with Spot and On-Demand Instances

For workloads with variable demand, Savings Plans can be combined with Spot Instances for even lower costs. Use Savings Plans for baseline workloads and Spot Instances for temporary, non-critical workloads.

6. Automate Cost Optimization with AWS Budgets and Alerts

Set up AWS Budgets and alerts to track usage and detect anomalies. This ensures that commitments align with evolving cloud demands and prevents unexpected On-Demand charges.

By implementing these cost optimization strategies, businesses can maximize the value of their AWS Savings Plans, achieving significant cost reductions while maintaining operational flexibility.

Frequently Asked Questions (FAQs)

1. Can I modify or cancel an AWS Savings Plan after purchase?

No, AWS Savings Plans are non-refundable and cannot be modified once purchased. However, you can buy additional plans to adjust to changing usage patterns.

2. Do Savings Plans apply to all AWS services?

Compute Savings Plans cover EC2, AWS Fargate, and Lambda. EC2 Instance Savings Plans apply only to specific EC2 instance families in a single region. SageMaker Savings Plans are exclusive to SageMaker services.

3. How do I know if a Savings Plan is right for my business?

Analyze your past AWS usage with AWS Cost Explorer to determine if your workloads are stable enough for a commitment. If your cloud usage varies, a Compute Savings Plan offers the most flexibility.

4. What happens if my usage exceeds my Savings Plan commitment?

Any usage beyond the committed spend is charged at On-Demand rates. To avoid excess costs, monitor usage and adjust commitments as needed.

5. Does the AWS offer an RDS Savings Plan?

AWS Savings Plans do not apply to Amazon RDS. Savings Plans cover compute usage (EC2, Lambda, Fargate). RDS has its Reserved Instances (RIs) for cost savings.

6. Does an AWS Fargate Savings Plan exist?

Not exactly. There is no dedicated savings plan for Fargate, but the AWS Compute Savings Plan applies to AWS Fargate. You don’t need to choose anything specific—just purchase a Compute Savings Plan, and it will automatically apply to Fargate as well, such as when using ECS (Elastic Container Service).

7. Does AWS Lambda Savings Plan exist?

Again as for Fargate, not exactly. There is no dedicated savings plan for Lambda, but the AWS Compute Savings Plan applies to AWS Lambda. You don’t need to choose anything specific—just purchase a Compute Savings Plan, and it will automatically apply to Lambda as well.

8. How does AWS Savings Plan sharing work?

Savings Plans can be purchased from any account within an AWS Organization or Consolidated Billing family. By default, their benefits apply to usage across all accounts in the organization. However, you can choose to restrict the benefits to only the purchasing account if needed.

Conclusion

AWS Savings Plans offer a powerful way to reduce cloud costs while maintaining flexibility, making them a preferred alternative to Reserved Instances for many businesses. By analyzing workload patterns, selecting the right plan type, and leveraging advanced strategies like layered commitments and consolidated billing, companies can maximize their savings.

Understanding how commitments, payment options, and plan types impact cost efficiency is key to making the most of AWS Savings Plans. Regular monitoring and optimization ensure businesses stay agile while keeping cloud expenses under control.

As you continue to develop and optimize your cloud strategy, follow Stormit’s blog for more valuable content on cloud technologies and best practices.