What is the difference between Standard and Convertible Reserved Instances?

On AWS, Standard RIs give the biggest discount but can only be modified, not exchanged, though you can sell them on the Reserved Instance Marketplace. Convertible RIs give a smaller discount but can be exchanged for another Convertible RI with different attributes, such as a new instance family.

Is a Reserved Instance a server?

No. An RI is a billing discount that applies automatically to running usage that matches its attributes. Zonal EC2 RIs also reserve capacity in an Availability Zone; regional ones do not.

Should you buy Reserved Instances or Savings Plans?

For EC2, AWS recommends Savings Plans, which give similar discounts with more flexibility. RIs still make sense for services Savings Plans don't cover, and when you need capacity reserved in a specific Availability Zone.

Commitments & rates

Reserved Instance (RI)

A Reserved Instance (RI) is a one- or three-year commitment to a specific kind of capacity, such as an EC2 instance type in a region or an RDS database, in exchange for a lower hourly price. It's a billing discount, not a server, and you pay for every hour of the term whether the capacity runs or not.

In plain English

Think of leasing a car for a year instead of renting one by the day. The daily cost is much lower, but you pay for every day of the lease whether you drive or not, and it is that model, from that rental office.

Formula and worked example

RI savings = on-demand cost − RI cost

On-demand cost: = on-demand hourly rate × hours the instance runs
Effective hourly rate: = upfront fee ÷ hours in the term + recurring hourly fee
RI cost: = effective hourly rate × every hour in the period, used or not

Worked example. Northwind Labs runs a reporting database all month (730 hours) on an instance that costs $1.00 an hour on demand. A one-year, no-upfront Reserved Instance for it costs $0.65 an hour. Prices are illustrative.
On-demand rate	$1.00 an hour
Reserved Instance rate (one year, no upfront)	$0.65 an hour
On-demand cost for 730 hours	$730.00
Reserved Instance cost for 730 hours	$474.50
Saving for the month	$255.50

The RI pays off only while the database runs more than 65% of the hours ($0.65 ÷ $1.00). If it's shut down or moved to a different instance family, the RI keeps billing for every hour of the term.

Why Reserved Instances matter

Reserved Instances give some of the deepest discounts on workloads that run around the clock. On AWS, RIs exist for EC2 and for managed services such as RDS, Redshift, ElastiCache and OpenSearch Service; Azure reservations work the same way for virtual machines, databases and many other services.

For EC2, AWS now recommends Savings Plans instead, because they give similar discounts without tying you to one instance configuration. RIs remain the option for services Savings Plans don't cover, and zonal EC2 RIs, unlike regional ones, also reserve capacity in an Availability Zone.

Common mistakes

Buying for the wrong shape. An RI only discounts usage that matches what you bought, such as instance family, region and platform. Change the family or region and the RI keeps billing with nothing to cover.
Comparing rates without checking run time. An RI that runs half the hours can cost more than on-demand. Divide the RI's effective hourly rate by the on-demand rate to get the share of hours it has to run to pay off.
Reading upfront fees as monthly cost. An all-upfront RI shows as one large charge on the day you buy it. Use amortized cost to see what each month really cost.
Letting RIs expire unnoticed. When the term ends, usage goes back to on-demand prices and the bill simply goes up. Track expiry dates and decide on renewals in advance.

Where to find it in AWS, Azure and Google Cloud

Where to find Reserved Instance by cloud provider
Cloud	What it is called	Where to find it
AWS	Reserved Instances	EC2 Reserved Instances, plus RIs for RDS, Redshift, ElastiCache and OpenSearch Service. Standard RIs give the biggest discount but can't be exchanged (they can be sold on the Reserved Instance Marketplace); Convertible RIs can be exchanged. Cost Explorer has RI utilization and coverage reports.
Azure	Azure reservations	One- or three-year reservations for virtual machines, databases and many other services, bought and tracked under Reservations in the Azure portal. Exchanges and refunds are allowed within limits; check Microsoft's current exchange policy before relying on one.
Google Cloud	Resource-based committed use discounts	Google Cloud's equivalent: a one- or three-year commitment to vCPUs, memory and other resources in one region. See committed use discount.

How CloudYali helps

CloudYali Financial Commitments shows each AWS Reserved Instance and Azure reservation with its utilization, unused commitment and savings, so you can spot RIs that no longer match your usage before they cost more than they save.

See the feature Read how it works in the docs

Commitments & rates
Savings Plan (SP)
A Savings Plan is an AWS or Azure commitment to spend a fixed amount per hour on eligible compute for one or three years. Usage up to that amount is billed at lower rates, and the discount follows your usage across instance sizes and, with the most flexible plans, instance families and regions.
Commitments & rates
Committed use discount (CUD)
A committed use discount (CUD) is Google Cloud's commitment discount: you commit to a set amount of resources, such as vCPUs and memory in one region, or to an hourly spend, for one or three years, and pay lower prices on that usage. The commitment is billed every month of the term, used or not.
Commitments & rates
Commitment utilization
Commitment utilization is the share of a commitment you paid for that your usage actually consumed: used commitment ÷ total commitment. Anything below 100% is commitment you paid for and didn't use, so it shows how well a Reserved Instance, Savings Plan, Azure reservation or committed use discount fits real usage.
Commitments & rates
Commitment coverage
Commitment coverage is the share of commitment-eligible usage that a Reserved Instance, Savings Plan, Azure reservation or Google Cloud committed use discount paid for, measured at on-demand prices. The rest was billed at full on-demand rates, so low coverage on steady usage is money left on the table.
Billing & cost types
Amortized cost
Amortized cost spreads each commitment fee across the period it covers, so a one-year Reserved Instance or Savings Plan paid up front shows up as a share of the fee every day of the term instead of one large charge on the day you buy it.
Commitments & rates
Effective savings rate (ESR)
Effective savings rate (ESR) is net savings as a share of what all commitment-eligible usage would have cost at on-demand prices. Because it subtracts commitment you paid for but didn't use, it is the one rate-optimization number that buying too many Reserved Instances, Savings Plans or committed use discounts can't inflate.

Frequently asked questions

What is the difference between Standard and Convertible Reserved Instances?
On AWS, Standard RIs give the biggest discount but can only be modified, not exchanged, though you can sell them on the Reserved Instance Marketplace. Convertible RIs give a smaller discount but can be exchanged for another Convertible RI with different attributes, such as a new instance family.
Is a Reserved Instance a server?
No. An RI is a billing discount that applies automatically to running usage that matches its attributes. Zonal EC2 RIs also reserve capacity in an Availability Zone; regional ones do not.
Should you buy Reserved Instances or Savings Plans?
For EC2, AWS recommends Savings Plans, which give similar discounts with more flexibility. RIs still make sense for services Savings Plans don't cover, and when you need capacity reserved in a specific Availability Zone.