If you're paying full price for Azure compute, you're leaving money on the table. That much is obvious. But when it comes to committing for discounts, you now have two options: Reserved Instances and Savings Plans. They both save you money. They both require a commitment. And choosing the wrong one can cost you more than doing nothing at all.
We covered Reserved Instances in detail in a previous post. This time, we're putting the two side by side - because understanding how they differ is the key to getting the best deal for your organisation.
The Core Difference
Both mechanisms give you discounts in exchange for a 1-year or 3-year commitment. But what you're 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, changes VM family, or gets containerised, that RI may stop applying.
Savings Plans: You commit to spending a fixed amount per hour (e.g., £5/hour of compute) for 1 or 3 years. Microsoft applies that commitment automatically across your 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 than if you'd committed to one location.
When Reserved Instances Win
RIs remain the right choice when you have workloads that are genuinely stable and predictable. If the answer to all of these is "yes," RIs are probably your best bet:
- The VM family won't change. Your SQL Server has been running on an E-series for two years and there's no reason to move it.
- The region is fixed. Your data sovereignty requirements mean this workload stays in UK South, full stop.
- You've already right-sized. The VM is correctly sized for its workload. You're not about to halve it or double it.
- Maximum discount matters. The gap between 65% and 72% is real money at scale. On a large E64 running 24/7, that difference is hundreds of pounds a month.
The classic RI candidates are core database servers, domain controllers, and long-running application servers - the bedrock infrastructure that hasn't changed in years and isn't going to.
Instance Size Flexibility Helps
It's worth noting that RIs do have some flexibility within the same VM series. If you hold an RI for a D4s_v3, it can apply (via normalisation ratios) to a D2s_v3 or D8s_v3 in the same series. So right-sizing within a family doesn't break your RI. But move to a completely different family - say from D-series to E-series - and the RI no longer applies.
When Savings Plans Win
Savings Plans are the better choice when your compute environment is more dynamic. Here's where they shine:
- Your VM mix changes frequently. If you're regularly right-sizing, modernising, or rebalancing workloads across different VM families, a Savings Plan keeps applying regardless.
- You operate across multiple regions. Savings Plans apply globally. If you shift workloads from UK South to West Europe, your commitment still counts.
- You're moving to PaaS. This is a big one. Savings Plans cover some PaaS compute services (like App Service Premium plans and Azure Functions Premium). If your roadmap includes lifting workloads off VMs and onto managed services, Savings Plans follow you there. RIs don't.
- You value simplicity. Managing individual RIs across dozens of VM types and regions is an administrative overhead. Savings Plans are one commitment that covers everything.
- Your architecture direction is uncertain. If you're mid-migration, evaluating containerisation, or planning a major refactor over the next 12-18 months, Savings Plans give you room to manoeuvre without losing your discount.
The Hybrid Approach (What We Usually Recommend)
In practice, very few organisations should go all-in on one or the other. The sweet spot for most is a layered strategy:
-
Reserved Instances for the bedrock. Identify the workloads that haven't changed in 12+ months and won't change in the next 12-36 months. Core database servers, domain controllers, always-on infrastructure. Buy RIs for these and lock in the deepest discount.
-
Savings Plans for the flexible compute. Everything else that runs consistently but might shift around - application servers being right-sized, workloads being migrated to PaaS, VMs that might change family during the commitment period. Cover this layer with a Savings Plan.
-
Pay-as-you-go for the variable. Dev/test environments, burst capacity, short-term projects, anything that gets turned on and off. Don't commit to something that's not always running.
This layered approach typically captures 80-90% of the savings available from full commitment, while keeping enough flexibility to adapt as your architecture evolves.
Common Mistakes We See
Buying RIs Before Right-Sizing
This is the most expensive mistake. An organisation buys a 3-year RI for an oversized D16, then right-sizes it to a D4 or moves it to an entirely different family. The RI either partially applies (via normalisation) or doesn't apply at all. You're locked into paying for capacity you've already decided you don't need.
Fix: Always right-size first. At least 3-6 months of stable, correctly-sized usage data before committing.
Ignoring RI Utilisation
An RI that's only 60% utilised is only delivering 60% of its value. If VMs get decommissioned, moved, or resized out of scope, the RI keeps billing. We regularly find organisations with thousands of pounds per month in underutilised RIs.
Fix: Review RI utilisation monthly. Azure Cost Management shows this clearly. If utilisation drops below 80%, investigate immediately.
Over-Committing on Savings Plans
A Savings Plan commitment is the minimum you'll pay per hour, regardless of actual usage. If you commit to £10/hour but your actual compute drops to £6/hour, you're still paying £10. Over-committing is less dramatic than with RIs (because Savings Plans are flexible about what they cover), but it still wastes money.
Fix: Commit to 70-80% of your consistent baseline compute spend. Let the remaining 20-30% ride on pay-as-you-go until you're confident in the floor.
Ignoring Exchange and Refund Policies
Microsoft's policies on RI exchanges and refunds have changed over the years and are more restrictive now. Self-service RI exchanges were retired in January 2024. Refunds have a lifetime cap of $50,000 per enrollment. If you bought the wrong RI, unwinding it is no longer straightforward.
Fix: Be conservative with commitments. It's better to under-commit and add more later than to over-commit and be stuck.
How to Decide: A Practical Framework
Azure Cost Management includes built-in recommendations for both RIs and Savings Plans. Here's how to use them:
- Pull 6-12 months of VM usage data. Look at which VMs have been running consistently and which have changed size, family, or region.
- Identify the stable core. VMs that haven't changed in 6+ months and have confirmed long-term plans - these are RI candidates.
- Calculate your consistent hourly spend. Look at your compute spend floor (the minimum you've spent every hour for the last 3-6 months). This is your Savings Plan baseline.
- Review Azure's recommendations. Cost Management will show projected savings for both options. Compare them, but don't blindly follow the numbers - context about your roadmap matters.
- Start conservative. Cover 50-70% of your stable compute with commitments. Review quarterly and increase as you gain confidence.
The Bottom Line
There's no universal answer to "which is better." Reserved Instances offer deeper discounts for predictable workloads. Savings Plans offer greater flexibility for dynamic environments. Most organisations benefit from both.
The real question isn't which mechanism to choose - it's whether you have the visibility into your usage to commit confidently. Without that visibility, any commitment is a gamble.
Not sure which commitment model is right for your Azure estate? Our free savings snapshot analyses your actual usage and recommends the optimal mix of RIs, Savings Plans, and pay-as-you-go.