AWS EC2 Pricing: The Ultimate Guide

How is AWS EC2 Priced?

Amazon Elastic Compute Cloud (Amazon EC2) provides cloud-based compute resources, designed especially for scalability. The service comes with a user-friendly interface that provides complete control over cloud resources, which are provisioned using EC2 instances. 

An EC2 instance acts as a virtual server hosted in the Amazon Web Services (AWS) cloud. There are many types of EC2 instances, each can be customized to the unique needs of the operation, using various operating systems (OS) and applications. 

Each EC2 instance type is priced differently, but there are other, additional, aspects that determine AWS EC2 pricing. Pricing tiers and models, for example, can significantly impact billing charges, as well as optimization features like Amazon EC2 Auto Scaling and AWS Compute Optimizer.

In this article, you will learn:

Amazon EC2 Instance Pricing Models

AWS EC2 pricing gives you many instance types to choose from, as well as several pricing models that can help optimize your billing.

EC2 Free Tier

Amazon offers new users a chance to check out various AWS services, free of charge, for up to 12 months. EC2 users with a Free Tier account can get 750 hours per month. 

The free tier provides t2.micro or t3.micro instances, including Windows, Linux, RHEL, or SLES. However, availability depends on the chosen region. You can opt to use mainly micro instances, to ensure you do not exceed the capacity offered by the free tier.

EC2 On-Demand

EC2 offers an on-demand pricing model, which charges only for compute capacity usage. You can choose between billing per hour or per second, and pricing varies between instance types. On-demand pricing eliminates long term commitments and upfront payments, providing a high level of scalability.

On-demand instances let you easily increase and decrease compute capacity, and are highly recommended for short-term workloads or operations experiencing frequent and unpredictable spikes in demand. You can also leverage on-demand instances for software development and testing.

Spot Instances

EC2 spot instances let you request spare EC2 capacity, and pay significantly less (up to 90% off) the original on-demand price. Because they can be interrupted on short notice, spot instances are typically used for applications working at flexible start and end schedules, or to accommodate urgent spikes in demand for compute resources.  

Reserved Instances (RIs)

Reserved instances can provide as much as 72% in savings. You can use RIs to significantly reduce your overall computing costs, in exchange for committing to use AWS EC2 for a long period of time (1 or 3 year terms). 

RIs are typically used for applications that operate with steady state usage. You can select RIs with Regional Scope, which lets you change the availability zone (AZ) and instance type over time, but does not reserve capacity. Alternatively, RIs can have Zonal Scope, which reserves capacity, but does not provide flexibility over AZ and instance type.

Dedicated Hosts

Dedicated Hosts provide you with physical EC2 servers, which are entirely dedicated to your workloads. Dedicated Hosts let you use your own existing server-bound software licensing, including SQL Server, SUSE Linux Enterprise Server, and Windows Server. 

Using your own dedicated server and license can reduce your costs and help you meet compliance requirements. However, you should make sure that all of your existing license terms are compatible with the environment. 

Amazon EC2 Cost Components

When you start estimating Amazon EC2 costs, you need to account for the following aspects:

  • Clock hours of server time—EC2 resources start incurring charges once they are running. For example, billing starts from the time your EC2 instances are launched until the time the instances are terminated. Instances can also incur charges from the time the Elastic IP address is allocated until it is de-allocated.
  • Instance type—instance types are composed of different combinations of resources, including central processing unit (CPU), memory, networking, and storage. Additionally, instance types can be scaled according to size, letting you customize resources according to the requirements of your workload.
  • Number of instances—AWS EC2 lets you provision multiple instances, and pricing depends on the number of instances you run at any point in time.
  • Load balancing—AWS offers a feature called Elastic Load Balancing, which lets you distribute traffic across EC2 Instances. The total number of hours during which Elastic Load Balancing runs contributes towards your monthly overall costs.
  • Detailed monitoring—EC2 can integrate with Amazon CloudWatch, which provides capabilities for monitoring your instances. The default setup provides basic monitoring. However, you can also add detailed monitoring capabilities, which are charged at a fixed monthly rate.
  • Elastic IP addresses—AWS provides one Elastic IP address for each running instance, at no additional charge.
  • Licensing—AWS enables you to either obtain a software license from AWS or bring your own license. AWS licenses are fully compliant and are charged on a “pay as you go” basis. You can also use your own existing licenses and reduce total cost of ownership (TCO), but only if the agreements are compatible with the cloud. You can use AWS License Manager to manage your software licenses.

Estimating Costs with the EC2 Pricing Calculator

The AWS Pricing Calculator can help you estimate the costs of various AWS services. Before building your solution, you can explore price points for your model, calculate an estimated cost, and determine which contract terms and instance types suit your model best.

You can generate Amazon EC2 estimates using two methods:

  • The quick estimate path—provides quick, but rough, cost estimates. 
  • The advanced estimate path—provides detailed cost estimates, accounting for data transfer and workload costs, additional storage types, and checks less common instance requirements. 

4 Ways to Save on Amazon EC2

AWS provides various tools and services you can use to optimize and reduce EC2 costs, including AWS Saving Plans, Amazon EC2 Auto Scaling, AWS Compute Optimizer, and spot instances.

1. AWS Savings Plans

AWS Savings Plans offer flexible pricing models that can help you save up to 72% when using AWS services and resources, including EC2 instances. Savings are applicable regardless of instance size, family, operating system, AWS Region, or tenancy.  

Similar to EC2 Reserved Instances, AWS Saving Plans offer major discounts in return for a long term commitment (1 or 3 years) to use certain amounts of compute resources, which are measured in $/hour.  

Once you sign up for Saving Plans, you can manage your plans and optimize costs using AWS recommendations. You also gain access to the AWS Cost Explorer, which provides performance reports and budget alerts.

Savings Plans offer three payment options:

  • No Upfront—does not require you to pay any upfront cost. You are charged on a monthly basis, according to the plan you chose.
  • Partial Upfront—offers lower Savings Plans prices. You are charged at least half of the payment upfront while the remaining costs are billed monthly. 
  • All Upfront—provides the lowest prices. All costs are charged in one upfront payment.

Saving Plans vs EC2 RI

While Saving Plans and EC2 RI both offer major savings for on-demand instances, there are significant differences between the two: 

  • Saving Plans—automatically reduce the costs of compute usage across all AWS regions, regardless of usage changes. 
  • Compute Savings Plans—can be compared to Convertible RIs, because the two provide savings of up to 66%. Compute Savings Plans automatically reduce the costs of any EC2 instance usage, regardless of the region, instance family, tenancy, and OS. 
  • EC2 Instance Savings Plans—can be compared to Standard RIs, because the two provide savings of up to 72%. EC2 Instance Savings Plans automatically provide savings on any instance usage, within an EC2 instance family, located in a specific region, regardless of size, OS, and tenancy.

2. Amazon EC2 Auto Scaling

Amazon EC2 Auto Scaling enables you to automatically remove or add EC2 instances, according to predefined configurations. This service comes with various features that can help you maintain the availability and health of your workloads, including a fleet management feature, and capabilities for predictive and dynamic scaling.

EC2 Auto Scaling can help you save costs by dynamically adapting capacity to current application loads, or by automatically scaling back EC2 instances on a fixed schedule (for example, during a weekend or after a planned promotion).

Learn more in our detailed guide to EC2 Auto Scaling

3. AWS Compute Optimizer

The Compute Optimizer offers optimization recommendations you can use to reduce overall resources costs and improve performance. Compute Optimizer leverages machine learning (ML) when analyzing historical utilization metrics, as well as determining which EC2 instance types are ideal for your use case. The model leverages the accumulated experience of AWS to identify workload patterns and generate recommendations for optimal use of AWS resources. 

4. Leveraging EC2 Spot Instances with Spot by NetApp

While AWS offers Savings Plans, RIs and spot instances for reducing EC2 cost, these all have inherent challenges that must be handled. Spot instances can be 90% less expensive than on-demand instances, however, as spare capacity, AWS can reclaim those instances with just a two minute warning, making them less than ideal for production and mission-critical workloads. AWS Savings Plans and RIs can deliver up to 72% cost savings, but they do create financial lock-in for 1 or 3 years and if not fully utilized can end up wasting money instead of saving it. Spot by NetApp addresses all these challenges allowing you to reliably use spot instances for production and mission-critical workloads as well as enjoy the long-term pricing of RIs without the risks of long-term commitment and much more. 

Key features of Spot by NetApp’s cloud financial management suite  include:

    • Predictive rebalancing—identifies spot instance interruptions up to an hour in advance, allowing for graceful draining and workload placement on new instances, whether spot, reserved or on-demand.  
    • Advanced auto scaling—simplifies the process of defining scaling policies, identifying peak times, automatically scaling to ensure the right capacity in advance.
    • Optimized cost and performance—keeps your cluster running at the best possible performance while using the optimal mix of on-demand, spot and reserved instances. 
    • Enterprise-grade SLAs—constantly monitors and predicts spot instance behavior, capacity trends, pricing, and interruption rates. Acts in advance to add capacity whenever there is a risk of interruption.
    • Serverless containers—allows you to run your Kubernetes and container workloads on fully utilized and highly available compute infrastructure while leveraging spot instances, Savings Plans and RIs for extreme cost savings.
    • Intelligent utilization of AWS Savings Plans and RIs—ensures that whenever there are unused reserved capacity resources, these will be used before spinning up new spot instances, driving maximum cost-efficiency. Additionally, RIs and Savings Plans are fully managed, from procurement to portfolio optimization, so your long-term cloud commitments generate maximum savings.
    • Visibility and recommendations—lets you visualize all your cloud spend with the ability to drill-down based on the broadest range of criteria from tags, accounts, services to namespaces, annotations, labels, and more for containerized workloads as well as receive cost reduction recommendations that can be implemented in a few clicks. 

 Learn more about Spot by NetApp’s cloud financial management solutions.