Definition: Flexible AWS pricing model that offers discounts in exchange for a per-hour compute spend commitment over 1 or 3 years.
— Source: NERVICO, Product Development Consultancy
What are Savings Plans
Savings Plans are a flexible AWS pricing model offering discounts of up to 72% compared to on-demand pricing in exchange for a per-hour compute spend commitment over 1 or 3 years. Unlike reserved instances, which require committing to a specific instance type and region, Savings Plans offer greater flexibility: the commitment is on a spend amount per hour, not on specific instances. This allows switching between instance types, regions, and even services without losing the discount.
How It Works
AWS offers three types of Savings Plans. Compute Savings Plans are the most flexible: they apply to any EC2, Fargate, and Lambda usage regardless of instance family, size, region, or operating system. EC2 Instance Savings Plans offer higher discounts but are limited to an instance family in a specific region. SageMaker Savings Plans apply to machine learning workloads. When activating a Savings Plan, you commit to a minimum hourly spend (for example, $10/hour). Usage within that commitment is billed at the discounted rate. Usage exceeding the commitment is billed at the normal on-demand price.
Why It Matters
Reserved instances offer good discounts but are rigid: if you change instance types or migrate to another region, you lose the discount. Savings Plans solve this problem by offering comparable discounts with much more flexibility. For companies optimizing their infrastructure, migrating between regions, or adopting containers and serverless, Savings Plans allow committing to a spend level without being tied to a specific configuration. This flexibility makes them the AWS-recommended option for most cost optimization scenarios.
Practical Example
A technology company spends $15 per hour on AWS compute distributed across EC2 (60%), Fargate (25%), and Lambda (15%). The team analyzes 6 months of usage data and confirms the stable minimum spend is $10 per hour. They activate a 3-year Compute Savings Plan with a $10/hour commitment and partial upfront payment. The first $10/hour is billed at a 52% discount, and the remaining $5/hour at on-demand pricing. When the team migrates some workloads from EC2 to Fargate, the discount applies automatically without needing to modify the plan.