A good chunk of your Amazon Web Services (AWS) public cloud spending goes to the Amazon Elastic Compute Cloud (Amazon EC2) service. Because it is the default compute service on AWS, Amazon EC2 is key to building, running, and scaling your AWS-based applications.
That also means Amazon EC2 pricing tremendously impacts your AWS budget. Understanding how the EC2 billing model works will help you control and optimize your AWS spending.
We’ve compiled this handy EC2 pricing guide to cover exactly what EC2 does, how EC2 pricing works, and how you can choose the best AWS services for your product or software.
What Does Amazon EC2 Do?
Amazon EC2 provides scalable compute capacity whenever your workload requires it. It also offers a variety of CPU, RAM, storage, and networking configurations (instance types) for your virtual servers (instances).
EC2 enables you to rent nearly unlimited virtual server capacity on-demand rather than provisioning excess resources in anticipation of unexpected spikes in traffic or workload.
EC2 Cost Explained: How Does Amazon EC2 Pricing Work?
The EC2 pricing model prevents you from buying and configuring your own hardware. Instead, Amazon lets you pay-as-you-go for only the resources you’ve used within a billing cycle. Often, that cycle is monthly.
This enables you to convert capital expenditures (CapEx) into operating expenditures (OpEx) when you pay your Amazon EC2 bill monthly.
That’s straightforward enough. But things can get complex pretty quickly. Here’s why.
Amazon EC2 instances are available in different sizes, too — not just different types. This flexibility empowers you to pick the most suitable sizes and types of EC2 instances for your specific workload.
There’s a term for that: rightsizing. Rightsizing minimizes the computing power you use while providing just enough power to run your workload smoothly.
Inefficient rightsizing leads to wasted cloud spending. A 2024 Stacklet survey found that 78% of organizations waste 21-50% of their cloud budgets due to poor resource sizing and outdated instance types. Some enterprises even lose over $50,000 per month due to this inefficiency.
Manually choosing the best type and size of EC2 instances for your needs can be daunting. Fortunately, you can use tools like CloudZero Advisor to help you with this.
Yet, to maximize ROI from your cloud budget, you’ll need to understand how Amazon EC2 pricing works.
Here’s how.
What Is The EC2 Billing Model?
AWS provides five Amazon EC2 billing methods:
- EC2 On-Demand Pricing
- EC2 Savings Plans
- EC2 Reserved Pricing
- EC2 Spot Pricing
- Dedicated Hosts Pricing
Also, EC2 pricing is either hourly or per second. EC2 per second billing has a 60-second minimum commitment and is ideal for workloads that do not always require full hours, like testing and staging.
Here’s a breakdown of each EC2 billing method.
1. Amazon EC2 On-Demand pricing
EC2 On-Demand pricing lets you choose any instance type and size, scale resources up and down as needed, and pay only for what you use. No upfront payments. No long-term commitment required.
You can also decide when specific EC2 instances should be deployed, terminated, rebooted, or hibernated. Billing is also hourly or per second. In addition, EC2 On-Demand pricing is available for all Availability Zones (AZs), Regions, and operating systems (Linux, Windows, and RedHat Enterprise Limited Edition (RHEL)).
This is also the default pricing for EC2 instances and offers the most flexibility. However, as you’ll notice below, On-Demand pricing is more expensive than other EC2 pricing methods.
Also, On-Demand pricing is highly variable and depends on your choice of region/availability zone, OS, instance type, and instance size. Here’s an example.
Location | Instance type | Instance size | vCPU | Memory | Operating system | On-Demand pricing per hour |
US West (North California) | General purpose – T3 | Large | 2 | 8 GiB | Linux Windows RHEL | $0.0992 $0.1268 $0.128 |
EU (Ireland) | General purpose – T3 | Large | 2 | 8 GiB | Linux Windows RHEL | $0.0912 $0.1188 $0.12 |
An example of how different operating systems affect EC2 pricing
We’ve covered more on On-Demand instances and when to use them here.
2. Amazon EC2 Savings Plans pricing
A one- or three-year EC2 Savings Plan can save you up to 72% off regular On-Demand pricing. AWS Savings Plans require you to commit to consistent usage in dollars per hour, such as $8/hour for one or three years.
Amazon EC2 Instance Savings Plans let you switch between EC2 instance types and operating systems during your contract period. But it locks you into one instance type (family) and AWS Region over the course of that contract.
Say you configured an M5.xl instance in US East (North Virginia) running Windows to begin with. An EC2 Instance Savings Plan lets you:
- Increase or decrease the instance size to suit changes in your usage
- Switch from Windows to a Linux instance, and vice versa
- Change tenancy (dedicated or shared)
- Change Availability Zone (AZ)
For example, you can switch from the M5.xl running Windows in the US East (North Virginia) to an M5.2xl running Linux in the US East (North Virginia) to increase capacity. But you won’t be able to switch from the M5.xl running Windows to a T3.xl running Windows or Linux. Also, you cannot migrate to US West (Ohio) to host the same Windows M5.xl instance.
Compute Savings Plans offer discounts of up to 66% compared to On-Demand EC2 pricing.
Despite lower discounts, these plans apply to multiple AWS services (Amazon EC2, AWS Fargate, and AWS Lambda), regions, instance families, instance sizes, and operating systems.
One more thing. Your Savings Plans discount amount will also depend on the payment plan you choose:
- All upfront – Get the most savings when you pay for the entire plan at the beginning
- Partial upfront – Save when you pay at least 50% down
- No upfront – You’ll pay your commitment monthly over the term of your contract with some savings
Let’s work with an example here.
Suppose you configure an M6i.xlarge in the US West (Oregon). For a one-year EC2 Instance Savings Plan with a partial upfront payment, the On-Demand rate is $1,060 ($530 upfront, then $44.15 monthly). That’s $0.121 per hour, a 37% discount from the On-Demand price. Over a year, that’s $622 in savings.
3. Amazon EC2 Reserved Instances pricing
If you commit to consistent usage over one or three years, EC2 Reserved Instances pricing can save you up to 72% compared to On-Demand prices. Another advantage is that you reserve capacity in a specific Availability Zone, enabling you to launch new instances whenever needed.
There’s more.
- Standard Reserved Instances pricing enables you to save up to 72% vs On-Demand pricing, and you can change the Availability Zone, instance size, and networking of your Standard RIs within the contract term.
- Convertible Reserved Instances pricing allows you to apply up to 66% discounts across your RIs’ instance types, tenancy types, and operating systems during the contract period.
Like Savings Plans, you can pay for RIs all upfront, partially upfront, or monthly without a down payment. Of course, the more you pay upfront, the higher your savings.
See the differences between AWS Savings Plans and Reserved Instances here.
Tip: If you want to optimize your RIs and Savings Plans automatically, tools like ProsperOps can help you do that continuously.
Check out this chart by ProsperOps showing an overview of the differences between AWS SPs and RIs:
Another thing: AWS offers Reserved Instance volume discounts when you purchase many EC2 RIs in a specific AWS Region (e.g., 5% for $500,000 to $4M and 10% for $4M to $10M).
You can learn more about when to use Reserved Instances pricing and best practices for optimizing AWS RIs here.
4. Amazon EC2 Spot Instances pricing
EC2 Spot pricing is by far the cheapest, saving you up to 90% off standard pricing. This method allows you to use surplus EC2 computing capacity until AWS needs it back for other customers.
Spot prices are not fixed. They are subject to a bidding process, and AWS constantly adapts them to market demand across different Availability Zones. You only use them when your bid (request rate) exceeds the offered Spot Price.
Here’s the tradeoff. If others outbid you on your maximum price, or if demand increases and supply decreases, AWS discontinues your Spot Instances. For fault-intolerant applications, this interruption can lead to service disruption.
In addition, Amazon EC2 automatically switches to the more expensive On-Demand pricing after reclaiming Spot instances, which can drain your budget.
You could manually configure Hibernate or Pause-Stop features to mitigate the risks. However, running multiple instances or use cases can be overwhelming and time-consuming. Fortunately, tools like Xosphere automate switching between Spot instances so you can take advantage of Spot pricing.
See the best use cases for Spot pricing here.
5. Dedicated Hosts pricing
A dedicated host is essentially a physical server that provides instance capacity specifically to you. This EC2 pricing method blends the resilience and flexibility of the AWS public cloud with the cost savings of using your own licenses (such as your Windows SQL server license).
The plan bills users based on the On-Demand hourly rate, not per second. However, if you purchase them on a reservation basis for one or three years, you can save up to 70% on On-Demand hourly pricing.
When using savings plans for dedicated hosts, you can save up to 72% on Dedicated Hosts compared to On-Demand pricing.
This pricing approach makes sense for companies seeking to maintain compliance or minimize hardware sharing for security reasons.
6. Related costs to consider
Yes, there are more variables to compute into your Amazon EC2 pricing scheme. AWS bills for additional related services, like block storage, egress traffic, premium support, load balancing, and IP addresses.
Predicting these costs is difficult because they change with usage over time. So, how do you understand, control, and optimize your Amazon EC2 costs with all these variables to consider?
How To Understand, Control, And Reduce Amazon EC2 Costs Immediately
Start by improving your AWS cloud costs visibility so you can see where your money is going. You can then break down your AWS cloud bill to see how much you spend on Amazon EC2. If you want to understand who, what, and why your EC2 bill is increasing, you can zoom in and out of your EC2 pricing insights using unit economics.
Unfortunately, native AWS cost tools, such as the AWS Cost Explorer and Cost and Usage Reports, provide only an overview of your costs.
Cost and Usage Reports are notoriously difficult due to their Excel-like layout with hundreds of thousands of rows and columns.
Cost Explorer primarily displays total costs and averages over time — not how specific dimensions in your organization contributed to your cloud bill.
Thus, it is difficult to decide where to cut costs or where to invest more.
In addition, those tools require hours of tagging and re-tagging your EC2 resources just to get started understanding your costs.
Get Unit Cost Intelligence With CloudZero
CloudZero is unlike other cloud cost optimization tools for AWS. CloudZero’s cloud cost intelligence platform collects, analyzes, and shares your costs in the context of your business, like this:
- Easily view your AWS costs by customer, team, environment, deployment, project, product, and feature. This helps you tell how to price your services profitably.
- Get a detailed look at how your people, products, and processes affect your Amazon EC2 costs. This empowers you to tell precisely who or what impacts your costs and why they’re changing.
- You can pinpoint where to cut costs because you can see where your money goes. For example, you can tell if the cost of supporting free users is eating into margins, in which case you may reduce the duration of the free plan to a 30-day or 14-day free trial.
- Identify exactly where to increase investment. For instance, you can tell which customer segments or software features are your most profitable, leading to a better ROI if you increase their productivity.
- Combine your AWS costs with cost data from Azure, GCP, Snowflake, Kubernetes, New Relic, and more vendors’ data to analyze it in one place.
- Receive near real-time, noise-free alerts via Slack whenever your usage reaches a specified threshold, ensuring you don’t go over your budget.
There’s more to CloudZero, including budgeting and forecasting, AWS Savings Plans and RIs dashboard, and integrations with robust tools to help optimize your Amazon EC2 costs.
Will CloudZero save you $2.4 million annually as we did for our customer, Drift? 
to find out.
Amazon EC2 Pricing FAQs
How much does EC2 cost per month?
It depends on what billing method you select and other factors, such as the instance type, instance size, operating system, tenancy model, region, and availability zone, as well as whether you use load balancing.
What are the main pricing options for Amazon EC2 instances?
EC2 offers five pricing options: On-Demand, Savings Plans, Reserved Instances, Spot price, and Dedicated Hosts pricing. Other costs include egress data transfers, premium support, and block storage costs.
Is Amazon EC2 free?
EC2 pricing includes a free tier that offers 750 hours of Linux or Windows t2.micro instances (or t3.micro where the t2 instance family is unavailable) per month for a year.
What is the cheapest EC2 instance type in AWS?
Compared to other instance types, General Purpose T2 instances are relatively inexpensive. Your specific use case may change this.
The Cloud Cost Playbook
The step-by-step guide to cost maturity
