A deep dive into RDS Reserved Instance pricing reveals that paying everything upfront might not be the smart financial move you think it is. Let's do the math.
After my recent adventure with expired Reserved Instances, I did what any cost-conscious cloud architect would do: I opened the AWS Pricing Calculator to buy new reservations.
What I discovered was fascinating.
Turns out, the "pay everything upfront" option — the one that feels like it should save you the most money — barely saves you anything compared to partial upfront. And depending on your company's accounting practices, it might actually be the wrong choice.
Let's dive into the numbers.
The Three Flavors of RDS Reserved Instances
When you commit to an RDS Reserved Instance, AWS gives you three payment options:
- No Upfront — Pay $0 today, reduced hourly rate for the term
- Partial Upfront — Pay some now, even lower hourly rate
- All Upfront — Pay everything today, $0 hourly rate
The conventional wisdom says: "Pay everything upfront! You'll save the most money!"
But is that actually true?
The Numbers Don't Lie (But They Do Surprise)
Let's look at a real example: db.m5.2xlarge in us-east-1.
| Payment Model | Upfront Cost | Hourly Rate | Total (3 Years) | Avg/Year | Savings/Year |
|---|---|---|---|---|---|
| On-Demand | $0 | $0.684 | $17,975.52 | $5,991.84 | - |
| 1-Year No Upfront | $0 | $0.438 | $3,836.88 | $3,836.88 | $2,154.96 |
| 1-Year Partial Upfront | $1,828 | $0.209 | $3,658.84 | $3,658.84 | $2,333.00 |
| 1-Year All Upfront | $3,582 | $0.00 | $3,582.00 | $3,582.00 | $2,409.84 |
| 3-Year No Upfront | - | - | Not Available | - | - |
| 3-Year Partial Upfront | $3,685 | $0.14 | $7,364.20 | $2,454.73 | $3,537.11 |
| 3-Year All Upfront | $7,223 | $0.00 | $7,223.00 | $2,407.67 | $3,584.17 |
Wait. Let explain that highlighted total savings from the table above:
💡 The difference between Partial Upfront and All Upfront is only $47 per year.
That's $3.92 per month. Less than a fancy coffee.
Note: At the time of this writing, AWS does not offer a 3-Year No Upfront option for RDS Reserved Instances. You'll need to make some upfront payment for 3-year commitments.
For Smaller Instances, It's Even More Interesting
Let's look at db.t3.small:
| Payment Model | Upfront Cost | Hourly Rate | Total (3 Years) | Avg/Year | Savings/Year |
|---|---|---|---|---|---|
| On-Demand | $0 | $0.034 | $893.52 | $297.84 | - |
| 1-Year No Upfront | $0 | $0.024 | $630.72 | $210.24 | $87.60 |
| 1-Year Partial Upfront | $100 | $0.011 | $589.08 | $196.36 | $101.48 |
| 1-Year All Upfront | $196 | $0.00 | $588.00 | $196.00 | $101.84 |
| 3-Year No Upfront | - | - | Not Available | - | - |
| 3-Year Partial Upfront | $214 | $0.008 | $424.24 | $141.41 | $156.43 |
| 3-Year All Upfront | $420 | $0.00 | $420.00 | $140.00 | $157.84 |
💡 The difference between Partial Upfront and All Upfront is only $1.41 per year.
That's right. You can keep an extra $214 in your pocket for nearly three years (the difference between $420 all-upfront and $214 partial-upfront), and it only costs you a buck forty-one per year.
But Wait, There's More: The Accounting Plot Twist
Here's where it gets really interesting, especially for finance teams.
When you pay All Upfront, that's typically classified as Capital Expenditure (CapEx) — a big expense hit to your balance sheet today.
When you pay Partial Upfront with ongoing hourly charges, that's Operating Expense (OpEx) — spread across time, impacting your income statement gradually.
And when you choose No Upfront? That's pure OpEx — zero capital outlay, maximum cash flow preservation, and the commitment still gets you substantial savings (29-36% off on-demand). You're essentially getting a discount just for promising AWS you'll stick around for a year.
Depending on your company's:
- EBITDA targets (Earnings Before Interest, Taxes, Depreciation, and Amortization)
- Cash flow strategy
- CapEx budget constraints
- Quarterly earnings goals
...that $47/year savings between Partial and All Upfront might not be worth the accounting headache or the cash flow impact. And the No Upfront option might actually be your best play if cash flow is king.
AWS Leadership Principle Alert: Frugality
Accomplish more with less. Constraints breed resourcefulness, self-sufficiency, and invention.
True frugality isn't just about the lowest sticker price — it's about optimizing for your actual constraints. If preserving cash flow matters more than saving $4/month, that is frugality.
So What Should You Actually Do?
AWS Leadership Principle: Learn and Be Curious
Leaders are never done learning and always seek to improve themselves.
Here's my recommendation after running these numbers:
Always buy Reserved Instances for predictable workloads. The savings vs on-demand are massive (50-60%).
Seriously consider Partial Upfront over All Upfront. You keep more cash in hand, and the marginal savings are negligible.
Talk to your finance team. The accounting treatment might matter more than the dollar savings.
Consider 1-Year commitments for stability. Technology changes fast. Three years is a long time in cloud computing.
Set calendar reminders. Don't be like me and let them expire. (See my previous cautionary tale.)
The Real Lesson
AWS Leadership Principle: Earn Trust
Leaders listen attentively, speak candidly, and treat others respectfully.
When I share cost optimization advice, I want to give you the real numbers, not just the conventional wisdom.
Yes, All Upfront technically saves you the most money.
But in the real world, where cash flow matters, where accounting classifications matter, where business priorities shift — Partial Upfront might actually be the smarter play.
The difference between "technically optimal" and "actually optimal" is often just a willingness to dig into the details and challenge assumptions.
Pro Tips for the Road
Use the AWS Pricing Calculator to model your specific instances. Prices vary by region and instance type.
Check your Savings Plans options too. They offer similar savings with more flexibility.
Monitor your reservation utilization. Unused reservations are wasted money.
Consider Convertible Reserved Instances if you think you might need to change instance types.
Set up cost anomaly detection (but maybe double-check your RI expiration dates first 😅).
The Bottom Line
- Massive savings exist: 50-60% off on-demand pricing
- All Upfront barely beats Partial: $1-50/year difference
- Cash flow might matter more: CapEx vs OpEx considerations
- Do the math for your situation: Your mileage may vary
Now if you'll excuse me, I need to go set up some billing alerts and calendar reminders. You know, before my next batch of reservations expire.
Happy optimizing! 💰
Have you done the RI math for your databases? Found any surprising numbers? Drop a comment or reach out — I'd love to hear your experience.
📖 Read the Previous Article:
AWS Cost Anomaly Alert: The Case of the Missing Discount — The story of how I discovered my Reserved Instances had expired (and why Amazon Q couldn't help).