What is the difference between on-demand and reserved instances?

On-demand instances and reserved instances are pricing models used by cloud service providers, such as Amazon Web Services (AWS), to offer flexibility and cost savings for different types of users. Let's delve into the technical details of each:

On-Demand Instances:

Technical Details:

  1. Instant Deployment:
    • On-demand instances are available instantly without any upfront commitment or long-term contract.
    • Users can launch these instances whenever they need them.
  2. Flexible Pricing:
    • Pricing is typically higher on a per-hour basis compared to reserved instances.
    • Users pay for the compute capacity on an hourly or per-second basis, depending on the cloud provider.
  3. No Long-Term Commitment:
    • Users are billed only for the hours or seconds they use the instances.
    • No upfront payments or long-term commitments are required.
  4. Dynamic Scaling:
    • Well-suited for dynamic workloads with unpredictable demand.
    • Users can easily scale the number of instances up or down based on current requirements.

Reserved Instances:

Technical Details:

  1. Upfront Commitment:
    • Users commit to a specific instance type in a particular region for a predefined term (1 or 3 years).
    • Upfront payment or partial upfront payment is required, leading to a lower effective hourly rate.
  2. Cost Savings:
    • Reserved instances offer significant cost savings over on-demand instances, especially for steady-state workloads.
    • Savings are achieved by committing to a specific instance type and term.
  3. Instance Availability:
    • Reserved instances guarantee capacity availability in the selected region and instance type.
    • This is particularly beneficial during peak demand periods when on-demand capacity might be constrained.
  4. Convertible and Standard Reserved Instances:
    • Some cloud providers offer convertible reserved instances, allowing users to change the instance type during the term.
    • Standard reserved instances offer the highest level of savings but are less flexible compared to convertibles.


  1. Usage Patterns:
    • On-demand is suitable for sporadic or short-term workloads.
    • Reserved instances are more cost-effective for steady, predictable workloads.
  2. Cost Management:
    • On-demand is easier to manage in terms of cost as there is no upfront commitment.
    • Reserved instances require careful planning to ensure the commitment aligns with workload characteristics.
  3. Flexibility vs. Cost Savings:
    • On-demand offers maximum flexibility but at a higher cost.
    • Reserved instances provide substantial cost savings at the expense of some flexibility due to the upfront commitment.

The choice between on-demand and reserved instances depends on the specific requirements and usage patterns of the workloads, with on-demand offering flexibility and reserved instances delivering potential cost savings for committed, steady-state workloads.