If you are paying full price for Azure compute, you are leaving money on the table. But when it comes to committing for discounts, you now have two options: Reserved Instances and Savings Plans. They both save money. They both require a commitment. And choosing the wrong one can cost you more than doing nothing at all.
The Core Difference
Both give you discounts in exchange for a one or three year commitment. But what you are committing to is fundamentally different.
Reserved Instances (RIs): You commit to a specific VM family, in a specific region, running a specific OS. In return, you get the deepest possible discount — up to 72% off pay-as-you-go. The trade-off is rigidity. If your workload moves region or changes VM family, the RI may stop applying.
Savings Plans: You commit to spending a fixed amount per hour of compute for one or three years. Microsoft applies that commitment automatically across eligible resources — different VM families, different regions, even some PaaS services. The discount is slightly lower (up to 65%), but the flexibility is significantly higher.
Think of it this way: RIs are like booking a specific hotel room for a year. Savings Plans are like prepaying a hotel chain — you can stay at any of their properties, but the nightly rate might be a touch higher.
When Reserved Instances Win
RIs remain the right choice when workloads are genuinely stable and predictable:
- The VM family will not change. It has been running on the same series for years.
- The region is fixed. Data sovereignty or latency requirements mean it stays put.
- You have already right-sized. The VM is correctly sized and will not be changing soon.
- Maximum discount matters. The gap between 65% and 72% is real money at scale.
The classic RI candidates are core database servers, domain controllers, and long-running infrastructure — workloads that have not changed in years and are not going to.
When Savings Plans Win
Savings Plans suit more dynamic environments:
- Your VM mix changes frequently. Regular right-sizing or modernisation across different families.
- You operate across multiple regions. Savings Plans apply globally.
- You are moving to PaaS. Savings Plans cover some managed compute services. RIs do not.
- Your architecture direction is uncertain. Mid-migration, evaluating containers, planning a refactor — Savings Plans give you room to manoeuvre.
The Hybrid Approach
In practice, very few organisations should go all-in on one or the other. The sweet spot is a layered strategy:
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Reserved Instances for the bedrock. Workloads that have not changed in 12+ months and will not change in the next 12–36. Lock in the deepest discount.
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Savings Plans for the flexible compute. Everything that runs consistently but might shift — applications being right-sized, workloads migrating to PaaS, VMs that might change family.
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Pay-as-you-go for the variable. Dev/test, burst capacity, short-term projects. Do not commit to something that is not always running.
This layered approach typically captures 80–90% of the savings available from full commitment, while keeping enough flexibility to adapt.
Common Mistakes
Buying RIs before right-sizing. The most expensive mistake. Locking into a three-year commitment on an oversized VM, then right-sizing it out of scope. Always right-size first — at least three to six months of stable usage before committing.
Ignoring RI utilisation. An RI that is only 60% utilised is only delivering 60% of its value. If VMs get decommissioned or resized out of scope, the RI keeps billing.
Over-committing on Savings Plans. The commitment is the minimum you will pay per hour, regardless of actual usage. Commit to 70–80% of your consistent baseline. Let the rest ride on pay-as-you-go until you are confident in the floor.
Forgetting exchange and refund restrictions. Microsoft's policies on RI exchanges have tightened. Self-service exchanges were retired in January 2024. Refunds have a lifetime cap. Be conservative — it is better to under-commit and add more later.
The Bottom Line
There is no universal answer. Reserved Instances offer deeper discounts for predictable workloads. Savings Plans offer greater flexibility for dynamic environments. Most organisations benefit from both.
The real question is whether you have the visibility into your usage to commit confidently. Without that visibility, any commitment is a gamble.
Not sure which commitment model fits your Azure estate? Get a free FinOps assessment — we analyse your actual usage and recommend the optimal mix.