Azure Savings Plans vs. Reserved Instances: Which Option is Right for You?
Introduction – Why Compare Savings Plans and Reserved Instances?
Azure provides two main options for cutting your cloud costs: Savings Plans and Reserved Instances (RIs). Both promise to lower your Azure bill if you commit to using resources over one or three years.
They work in different ways and suit different scenarios. If you’re tasked with optimizing cloud spend, it’s important to understand how they compare and which option fits your needs. Read our overview, ” Azure Cost Management & Licensing: Negotiation Tactics for Cloud Savings.
Azure Savings Plans are a newer, flexible commitment model where you agree to spend a fixed dollar amount per hour on Azure compute services.
In return, Azure applies discounted rates to any compute usage up to that hourly amount across eligible services and regions.
Azure Reserved Instances are a more rigid option: you reserve specific virtual machines or other resources in a particular region for a term, locking in a lower rate for that exact resource.
Both Savings Plans and RIs can yield substantial savings off pay-as-you-go rates by trading some flexibility for commitment. The key difference lies in flexibility versus maximum savings.
Savings Plans offer versatility across resources, while Reserved Instances can deliver deeper discounts for specific, predictable workloads. The “right” choice isn’t universal – it depends on which option aligns best with your workload patterns and risk tolerance.
How Azure Savings Plans Work
Azure Savings Plans let you save by committing to spend a fixed amount per hour on Azure compute for a 1-year or 3-year term – for example, you might commit to $10 per hour. Azure will charge you a flat $10 each hour (billed monthly or upfront), and in exchange, you get discounted rates on any compute usage up to $10/hour.
If your usage in an hour normally costs less than $10 (say $9), it’s fully covered by your commitment (you still pay $10). If it would cost more (say $12), you pay your $10 commitment plus the extra $2 at normal rates.
The big benefit of a Savings Plan is flexibility. The commitment isn’t tied to a specific VM or service. It automatically applies to a wide range of Azure compute resources – virtual machines, containers, functions, app services, and more – in any region.
This means if your workloads change (you switch VM sizes, scale up/down, or move across regions), your Savings Plan discount follows your consumption up to your committed amount.
However, Azure Savings Plans only discount compute charges – they don’t cover related costs like storage or networking. Any usage beyond your committed hourly spend is billed at normal rates.
And if you don’t use your full commitment in a given hour (for example, you pay $10 but only consume $8 of compute), the difference is essentially wasted. To avoid overcommitting, choose a commitment amount that matches your typical baseline usage.
It’s also important to note that once you purchase a Savings Plan, you’re locked into that commitment for the full term.
You cannot cancel or reduce it mid-term if needs change. You’re essentially betting that you will consistently use at least that amount of compute.
The upside is a decent discount (often 20–35%) with minimal effort. The downside is the lack of flexibility to adjust the commitment, so plan carefully before you buy.
Read how to use AHB, Azure Hybrid Use Benefit (HUB) Explained: Save on Windows & SQL Licensing in Azure.
How Reserved Instances Work
Azure Reserved Instances save costs by pre-purchasing specific resource capacity. With RIs, you commit to a particular resource configuration (e.g., a certain VM size in a specific region) for a 1- or 3-year term.
In exchange, you pay a reduced rate for that resource whenever you use it. You’re essentially paying in advance for a VM to run, and whenever it’s running, you benefit from the lower prepaid rate.
The RI discount applies only when the reserved resource is in use. If you reserved two instances of a given VM type in a region, the discount will cover two running VMs of that type in that region.
If those VMs aren’t running, that paid-for capacity is wasted for those hours. There’s no rollover of unused time. Unlike a Savings Plan that covers many resources, an RI only applies to the specific instance type and region you reserved (with some limited flexibility within the VM family).
RIs are much less adaptable if your needs change. If you switch an application to a different VM size or move it to another region, your reservation might no longer be applicable.
While Azure allows exchanging or canceling some reservations (usually with fees or limits), these are exceptions rather than the norm. Generally, you should only buy RIs when you’re confident a resource will be needed at a steady level for the duration of the term.
The appeal of RIs lies in the significant savings and certainty they provide for steady workloads. Because you lock in a specific resource, the discount is hefty – often around 30–50% off versus pay-as-you-go (and sometimes more).
You also get capacity assurance: your reserved instance guarantees that the resource will be available to you when you need it, even during peak demand in the region.
RIs are ideal for predictable, always-on workloads. Reserving a production database server that runs 24/7 will almost certainly pay off, since you’ll use it continuously.
However, you do need to monitor and manage your reservations to ensure they’re being utilized. In a large environment with many RIs, tracking them so that none sit unused can become an administrative task.
Feature Comparison: Savings Plans vs RIs
Here’s a quick comparison of Azure Savings Plans and Reserved Instances:
| Feature | Azure Savings Plans | Azure Reserved Instances |
|---|---|---|
| Commitment Basis | $/hour spend commitment (compute). | Specific resource (VM type & region). |
| Flexibility | Very high – applies across services and regions. | Low – only for that resource/region. |
| Savings Potential | Moderate to high (~20–35% off). | Higher for fully used resources (30–50%+ off). |
| Risk of Waste | Lower – any eligible usage can utilize commitment. | Higher – if that resource isn’t used, money is wasted. |
| Best For | Dynamic, changing environments. | Stable, continuously running workloads. |
Pros of Savings Plans
- Broad Flexibility: A savings plan covers many Azure services and regions. The discount automatically applies wherever you have eligible compute usage, without needing to target specific resources.
- Easy Administration: It’s largely a “set and forget” commitment. You don’t have to manage multiple reservations – the plan automatically allocates your committed spend to whatever workloads need it.
- Great for Evolving Usage: If your resource usage fluctuates or you frequently adopt new services, a savings plan adapts to those changes seamlessly without manual adjustments.
- Lower Risk of Waste: The dollar-based commitment can be consumed by any compute usage, which means you’re less likely to pay for idle capacity as long as some workload can use the budget.
Pros of Reserved Instances
- Maximum Discounts: RIs can provide deeper savings on a specific resource than a general savings plan. If you’re certain a particular VM will run continuously, locking it in with an RI yields substantial cost reductions.
- Capacity Assurance: Reserving an instance guarantees access to that capacity. During spikes or capacity shortages in the region, your reserved instances have priority and remain available to you.
- Cost Predictability: RIs fix the pricing for specific workloads you know you’ll use, making your cloud costs for those resources stable and predictable over the reservation term.
- Targeted Savings: You decide exactly which workload to reserve. This allows you to apply discounts to your most critical or costly resources, ensuring those specific expenses are minimized.
Checklist – Selecting Between Savings Plans and RIs
- List Your Workloads: Catalog your major workloads and note their typical usage patterns (e.g., steady 24/7 vs. intermittent or spiky demand).
- Identify Stable Candidates (RIs): Pinpoint which workloads are highly stable and continuously running – those are prime candidates for reserved instances.
- Assess Environment Dynamics: Gauge how much your overall usage fluctuates if it’s very dynamic across services or regions, lean towards a Savings Plan for flexibility.
- Mix and Match: Consider a combination – use a Savings Plan to cover your baseline compute usage, and add RIs for a few critical always-on resources to maximize savings on those.
- Choose Duration Wisely: Decide between 1-year and 3-year commitments based on your confidence in future needs. Shorter terms offer more flexibility, while longer terms reward you with higher savings if you’re certain about usage.
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