Rule of Thumb for Purchasing AWS Reserved Instances
Amazon Web Services' Reserved Instances (RI) offering allows you tell Amazon how much capacity you plan to use long term and get a discount on your hourly usage fees. You have to pay a partial or full upfront fee (full is best) to lock in the discounted rate. But when should you buy RI's, and for how long should you buy them? From my experience I've formulated this two-part rule of thumb:
1. You are going to run the instance 24x7 for at least 6 months.
My experience points to the break even point for the instances that I most often use is right around the 6-month mark. This is when the discounted hourly rate offsets the upfront cost to purchase the RI. At this point you can opt for the "All Upfront" RI and maximize your savings. Right now the discount is just shy of the 40% mark on 1-year RI's.
2. Always buy a 1-year term.
Cloud services are still relatively new, and the pricing and capabilities of instances are still pretty dynamic. When Aamzon lowers the RI hourly rate they don't give you that lower pricing until you buy a new RI at the new rate. If you lock in a 3-year prince you loose flexbility to get in on lowering prices and increasing capabilities over the next 3 years. Each time I've bought new RI's I've either been able to increase the power of my instances, reduce my costs, and in many cases I've accomplished both.
Alright, now go purchase those RI's.