Amazon Web Services (AWS) offers a myriad of virtual servers to cater to almost any need you can think of. And the pricing reflects these options.
Let’s dive right into it.
What Are AWS Instances?
AWS instances are virtual servers that provide the compute power needed to run workloads across the Amazon Web Services (AWS) cloud ecosystem. Unlike traditional on-premises servers, AWS instances — particularly the ones available in the Amazon Elastic Compute Cloud (EC2) service — offer unique advantages.
Consider this:
Image: AWS instance naming
There are a ton of different AWS instances, including categories, families, and sizes, as you can see here:
Images: Examples of AWS EC2 instances
Yet, AWS instances differ from conventional on-premises servers in several key ways:
- Scalability: AWS instances can scale up or down in real-time based on demand. This elasticity lets you adapt instantly to workload changes without needing costly hardware upgrades, unlike traditional data centers.
- Flexibility: With over 300 instance types, AWS offers a wide range of compute options (CPU, memory, and networking) to match specific workload requirements. For a deeper dive into AWS instances, including different types, instance families, and best use cases, check out this Amazon EC2 instances 101 guide.
- Infrastructure management: On-premises servers require significant maintenance and infrastructure costs. AWS, on the other hand, manages much of the underlying infrastructure, including auto-scaling and software upgrades. This frees up your team to focus on core workloads, such as coding new features.
- Availability and reliability: AWS operates a global network of data centers. This means you can deploy instances across multiple Availability Zones for high availability and fault tolerance. In contrast, traditional servers, typically housed in a single location, are more vulnerable to outages and disruptions.
Related read: How AWS Regions Affect Cloud Costs (And How To Reduce Your Charges)
- AWS instance pricing: AWS follows a pay-as-you-go model, so you only pay for what you use. In contrast, on-premises setups require significant upfront investment and often lead to waste through idle or overprovisioned capacity.
We saved pricing for last on purpose. See, understanding AWS instance costs isn’t always straightforward, especially if you’re new to AWS or cloud computing in general.
To help you navigate AWS pricing and choosing instances, we’ve put together several detailed guides:
- Choosing the Best AWS Pricing Model: A Complete Guide (With Examples): Here, we share the different AWS pricing structures across key services like Amazon EC2 (compute), Amazon S3 (storage), Amazon RDS (databases), and AWS Lambda (serverless computing).
- EC2 Instance Types 101: This guide takes a deep dive into Amazon EC2 instance categories, families, and sizes, helping you understand the best fit for your workloads.
- AWS Instance Types Compared: Choosing the Right Option: We focus on AWS instance performance to help you select the optimal compute resources for your specific needs.
- Amazon EC2 Pricing Explained: The Definitive Cost Guide: This guide breaks down EC2 pricing factors, including AWS Regions, data transfer fees, and purchase models (which we’ll cover in the next section).
Now, let’s get into the good stuff.
An Overview Of AWS Instance Purchase Models
An AWS instance purchase model defines how you acquire, pay for, and use AWS instances within Amazon’s cloud environment. You’ll also notice that there are payment models and AWS payment options.
The payment models come first:
- On-Demand Instances pricing
- Reserved Instances (RIs) pricing
- Savings Plans pricing
- Spot Instances pricing
- Dedicated Instances pricing
AWS offers three payment options: All Upfront, Partial Upfront, and No Upfront payments. These payment options apply specifically to Reserved Instances and Savings Plans pricing models.
How Do The Five Main AWS Instance Purchasing Models Work?
With that cleared up, here’s the full breakdown of each AWS instance pricing model without all the usual overwhelm.
1. AWS On-Demand Instance Pricing
This is the default AWS instance purchasing model. On-Demand pricing allows you to purchase compute power by the hour or per second, depending on the service. Key characteristics include:
- Pay as you go: There are no long-term commitments here.
- Pay only for what you use: Billing is per second or per hour (with a 60-second minimum), giving you precise cost control.
- Full control over the instance lifecycle: You can launch, stop, hibernate, reboot, or terminate On-Demand instances as needed. You are free to adjust performance in real-time to match workload demands.
- Instant scalability: Easily increase or decrease capacity to handle sudden workload spikes. Then, scale down quickly to avoid idle resources and unnecessary costs.
- Immediate availability: On-Demand Instances are ready to deploy instantly. This makes them perfect for urgent workloads, testing environments, or unpredictable usage patterns.
On-Demand instance pricing is the most flexible purchasing model. However, as you’ll notice below, it is also the most expensive.
2. AWS Reserved Instances (RIs) pricing
Reserved Instances (RIs) and On-Demand Instances offer the same compute options and configurations; the key difference is pricing. By committing to a fixed instance type for one or three years, RIs can provide up to 72% savings compared to standard On-Demand pricing.
You choose between two types of Reserved Instances:
- Standard RIs provide the highest discount. But you can only modify them within the same instance family and region. These are ideal for stable, predictable workloads where instance types remain unchanged.
- Convertible RIs offer more flexibility. You can exchange them for different instance types as your needs evolve, though at a slightly lower discount than Standard RIs.
This is also where the three AWS payment options we mentioned earlier come into play:
- All Upfront: You pay the full cost upfront for the maximum discount. This route is ideal for you if you have predictable workloads and available capital.
- Partial Upfront: Here, you can pay part of the cost upfront and a discounted hourly rate for the rest of the term (monthly), balancing upfront savings and ongoing costs.
- No Upfront: If you have limited upfront capital, or need to reduce your cash outlay at the beginning, this option lets you make no initial payment for a little less discount than in the other options. Instead, you pay a discounted hourly rate throughout the RIs term.
RIs are best for predictable workloads that require steady computing power. If usage exceeds your reserved capacity per hour, you’ll need to pay overage costs.
3. AWS Savings Plans pricing
Like RIs, Savings Plans are a commitment-based discount program, offering up to 72% off standard rates when you commit to a one- or three-year contract.
The key difference between RIs and Savings Plans? Flexibility. Instead of locking you into a specific instance type, Savings Plans let you commit to a consistent hourly spend across eligible services, giving you more freedom to adjust to workloads as needed.
AWS offers three types of Savings Plans, each designed for specific usage:
- EC2 Instance Savings Plans provide discounts for specific EC2 instance types within a chosen region.
- Compute Savings Plans apply to AWS Lambda, Amazon EC2, and AWS Fargate, offering flexibility across instance types and regions.
- Amazon SageMaker Savings Plans are designed for SageMaker workloads, helping reduce the cost of machine learning training and inference.
Want to dig even deeper? Check out our AWS Savings Plans guide here, where we break down how these plans work, their pros and cons, and how to queue AWS Savings Plans for better cost optimization.
4. AWS Spot Instances pricing
Spot Instances offer access to surplus AWS compute capacity at discounts of up to 90% off On-Demand rates. However, Spot Instances are priced dynamically based on supply and demand.
You bid on unused capacity, and if your bid exceeds the current Spot price, you get the instance at that price until it’s interrupted or you terminate it. See more about that in our in-depth Spot Instances guide here.
However, they can be interrupted with little notice based on customer demand across AWS’s network of data centers. This makes Spot instance pricing best for workloads that can tolerate disruptions.
These processes can include batch processing, stateless web servers, and AI/ML workloads that can pause or resume without major impact.
If you are concerned about interruptions, use a tool like Xosphere to seamlessly switch between Spot and On-Demand instances at the right times. It ensures maximum savings without risking downtime.
Related read: On-Demand Vs. Spot Instances: What’s The Difference?
5. AWS Dedicated Instances pricing
This AWS instance pricing model lets you rent physical servers exclusively for your use, giving you full control over instance placement and management. There’s more.
- You pay for the entire physical server as long as it remains active.
- Each server can host multiple instances, which is ideal for strategic resource management.
- Each Dedicated Host is tied to a specific instance type, providing visibility into your capacity and usage.
The instance purchasing model is ideal for businesses that require dedicated resources for compliance, security, or performance reasons.
AWS Instance Cost Examples
Here are a few quick examples to illustrate how AWS instance pricing works across the three main purchasing models.
On-Demand Instances pricing example
Say you need a c5d.4xlarge Linux instance with 16 vCPUs and 32 GB of memory for a short-term project. If the On-Demand hourly cost for this instance is $0.96 per hour and you use it 24 hours a day for a month (720 hours), your total cost would be ($0.96 X 720 hours) = $691.20.
Reserved Instances (RIs) pricing example
For the same c5d.4xlarge instance, if you commit to a 3-year Reserved Instance with an All Upfront payment (up to 72% off), the upfront cost might be approximately $9,224.28. This is a huge cut compared to On-Demand pricing ($24,883.20) for the three years.
Spot Instance pricing example
If you bid on a Spot Instance for the same c5d.4xlarge type at $0.20 per hour (a significant discount from the On-Demand price), and you use it for 720 hours in a month, your total cost would be $144 compared to $691.20.
These examples are for illustration purposes. For the latest AWS instance pricing and to estimate your actual potential costs, you’ll want to visit the official AWS pricing page.
Understand, Control, And Optimize Your AWS Instance Cost With Confidence
AWS instance pricing can get complex, but hopefully, this guide has made it simpler and easier to digest.
However, if you want to go beyond just understanding pricing and instead pinpoint exactly who, what, and why affects your costs — so you can optimize usage without guesswork — you’ll need a more strategic approach.
That’s where CloudZero comes in. With CloudZero, you can:
- Identify the people, products, and processes driving your cloud spend.
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And the best part? You can try it risk-free. 
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