How do Convertible and Standard Reserved Instances differ?

Convertible Reserved Instances and Standard Reserved Instances in Amazon EC2 both offer significant cost savings over On-Demand pricing in exchange for a one-year or three-year commitment, but they differ primarily in their flexibility and discount levels. Standard Reserved Instances provide the highest percentage discount, up to 72 percent off On-Demand rates, making them ideal for steady-state workloads with predictable hardware requirements that will not change over the term. In contrast, Convertible Reserved Instances offer a slightly lower discount, up to 66 percent off On-Demand rates, in exchange for the ability to change the instance family, operating system, tenancy, and payment option during the commitment term, provided the new configuration is of equal or greater value.

Understanding Amazon EC2 Reserved Instances

Before comparing the two classes, it is important to understand what an Amazon EC2 Reserved Instance is. A Reserved Instance is not a physical or virtual server itself, but rather a billing discount applied to the use of On-Demand Instances in your account. When you run an EC2 instance that matches the attributes of an active Reserved Instance—such as instance type, Region, tenancy, and platform—the hourly billing rate is automatically reduced to the Reserved Instance rate.

Both Standard and Convertible Reserved Instances share several core attributes when purchased:

• Term Length: You can commit to either a 1-year or a 3-year term. Longer terms yield steeper discounts.
• Payment Options: Both support All Upfront, Partial Upfront, and No Upfront payment structures. Paying more upfront results in a lower effective hourly rate.
• Scope: Both can be scoped to a specific Availability Zone (which provides a capacity reservation in addition to the billing discount) or to an entire AWS Region (which provides automatic instance size flexibility within the same instance family for Linux/Unix instances with default tenancy).

Standard Reserved Instances Explained

Standard Reserved Instances are designed for maximum cost savings when your architecture and compute needs are stable and well-understood.

Key Characteristics of Standard Reserved Instances

• Maximum Discount: Standard Reserved Instances offer up to 72 percent savings compared to equivalent On-Demand capacity.
• Limited Modification: You cannot change the instance family (for example, moving from an m5 to a c6i), operating system, or tenancy once purchased. However, you can modify the Availability Zone, change the scope between Regional and Zonal, or alter the instance size within the same instance family (for Linux/Unix instances without shared/dedicated constraints).
• AWS Marketplace Liquidity: If your needs change unexpectedly, Standard Reserved Instances can be sold on the AWS Reserved Instance Marketplace to third-party buyers, subject to certain restrictions and registration requirements.

Convertible Reserved Instances Explained

Convertible Reserved Instances are built for evolving workloads where you want to lock in long-term savings without being tied to a single hardware generation, instance family, or operating system for up to three years.

Key Characteristics of Convertible Reserved Instances

• Exchange Flexibility: Throughout the 1-year or 3-year term, you can exchange one or more Convertible Reserved Instances for another Convertible Reserved Instance with a different configuration. This includes changing the instance family, instance size, operating system (e.g., from Windows to Linux), and tenancy.
• Strong Discount: Convertible Reserved Instances offer up to 66 percent savings compared to On-Demand pricing. While lower than Standard Reserved Instances, the discount remains substantial.
• Automatic Tech Refresh: As AWS releases newer, more cost-effective instance generations (such as moving from Graviton2 to Graviton3 or from fifth-generation to seventh-generation Intel instances), you can exchange your existing reservations to take advantage of the newer instance families.
• No Marketplace Selling: Unlike Standard Reserved Instances, Convertible Reserved Instances cannot be bought or sold on the Reserved Instance Marketplace.

How the Convertible Exchange Process Works

When you perform an exchange on a Convertible Reserved Instance, no fee is charged by AWS, and the expiration date of the reservation remains the same as the original commitment. However, the exchange must satisfy the equal-or-greater value rule.

Let \(V_{\text{old}}\) represent the remaining total commitment value of the Convertible Reserved Instances being exchanged, and let \(V_{\text{new}}\) represent the total commitment value of the new target Convertible Reserved Instances over the remaining term \(t_{\text{rem}}\). The exchange condition requires:

\[V_{\text{new}} \ge V_{\text{old}}\]

If you are using an All Upfront or Partial Upfront payment option and \(V_{\text{new}} > V_{\text{old}}\), you will pay a true-up cost equal to the prorated difference in upfront costs:

\[\text{True-up Cost} = U_{\text{new}} - U_{\text{old}}\]

where \(U_{\text{new}}\) and \(U_{\text{old}}\) are the prorated upfront costs for the remaining term \(t_{\text{rem}}\). Note that you can upgrade payment options during an exchange (for example, moving from No Upfront to Partial Upfront, or Partial Upfront to All Upfront), but you cannot downgrade payment options (such as moving from All Upfront to No Upfront).

Side-by-Side Comparison

Calculating Cost Trade-offs

When deciding between a Standard and a Convertible Reserved Instance, it is helpful to evaluate the break-even point if there is a risk your instance family requirements will change before the term ends.

Suppose an On-Demand instance costs \(C_{\text{OD}}\) per hour, a Standard Reserved Instance offers a fractional discount \(d_S\) with an effective hourly rate of \(R_S = C_{\text{OD}}(1 - d_S)\), and a Convertible Reserved Instance offers a fractional discount \(d_C\) with an effective hourly rate of \(R_C = C_{\text{OD}}(1 - d_C)\), where \(d_S > d_C\). Over a total term of \(T\) hours, if you migrate off the Standard Reserved Instance’s instance family after \(t\) hours and cannot sell it on the Marketplace, your total cost \(E_S\) for running the workload (paying for both the unused Standard RI and the new instance at On-Demand or new RI rates) can rapidly exceed the total cost \(E_C = R_C \cdot T\) of a Convertible Reserved Instance that simply gets exchanged at hour \(t\).

Specifically, the hourly premium paid for the flexibility of a Convertible Reserved Instance over a Standard Reserved Instance is:

\[\Delta R = R_C - R_S = C_{\text{OD}}(d_S - d_C)\]

Because \(d_S - d_C\) is typically between \(0.06\) and \(0.12\) (6% to 12%), the insurance cost of choosing a Convertible Reserved Instance is relatively small compared to the risk of holding an unutilized Standard Reserved Instance for several months.

When to Choose Each Option

Choose Standard Reserved Instances When:

• You have a mature, steady-state application whose compute architecture will not change over the next 1 to 3 years.
• You are running commercial databases or legacy applications tied to specific instance families and operating systems.
• Maximizing raw cost reduction is your primary objective, and you have the operational capacity to sell unused reservations on the AWS Marketplace if needed.

Choose Convertible Reserved Instances When:

• You are committing to a 3-year term and want the ability to adopt newer EC2 instance generations as AWS releases them.
• You plan to modernize your applications—such as migrating from Windows to Linux or transitioning from x86 processors to AWS Graviton processors—during the reservation term.
• Your workload demands fluctuate across different workload profiles (for example, shifting from memory-optimized r6i instances to compute-optimized c6i instances).

Alternative Consideration: AWS Savings Plans

When evaluating Standard and Convertible Reserved Instances, you should also be aware of AWS Savings Plans, which AWS introduced as a flexible pricing model that largely parallels Reserved Instances:

• EC2 Instance Savings Plans are similar to Standard Reserved Instances (offering up to 72% savings in exchange for committing to a specific instance family in a Region, with automatic OS and tenancy flexibility).
• Compute Savings Plans are similar to Convertible Reserved Instances (offering up to 66% savings with automatic applicability across any EC2 instance family, Region, OS, tenancy, AWS Fargate, and AWS Lambda without requiring manual exchanges).

However, Reserved Instances remain relevant for organizations that specifically require Zonal capacity reservations linked directly to their billing commitments, or for those who rely on the ability to sell Standard Reserved Instances on the RI Marketplace or structure Convertible RI exchanges strategically.