In the distant past, before cloud computing, organizations used on-premise computing. Whenever a larger server was required, it involved physically purchasing the equipment, setting it up in a designated space, and connecting it to the network. In more sophisticated organizations, a procurement department attempts to plan for these upgrades. There are many ways to approach this problem, but all approximate solutions must consider the upfront equipment cost, space rent, and energy bill. All of this, in addition to predicting future infrastructure demands. 

With the launch of Amazon Web Services (AWS) in the mid-2000s, the definition of what is possible with web infrastructure has forever shifted. AWS Elastic Compute Cloud (EC2) virtual machine service allows anyone to start a virtual computer, run an operation, then (if wanted) shut it down. 

EC2 stands out as the primary cost driver of total AWS spend, and it underpins many of AWS’ most popular services, such as EKS, ECS, Fargate, Auto Scaling Groups, and more. 

Let’s walk through EC2 instance types, pricing scenarios, and how to optimize your EC2 spend.

Understanding Amazon EC2 Instances

EC2 was released as an official product in Oct 2008. The primary selling point is that the user only pays for what they use, as EC2 can autoscale to meet peak-hour demands. Users can also quickly provision virtual machines and perform new operations as needed. 

With AWS EC2 specifically, users can choose from various combinations of instance types (such as i3.2xlarge), availability zones (e.g. US East Ohio), and payment methods (On-Demand, Reserved, Spot) to meet their requirements. 

As of today, there are five major families of EC2 instance types offered: general purpose, compute-optimized, memory-optimized, accelerated computing, and storage optimized. Additionally, users can further customize their instances by selecting operating systems (typically Windows or Linux) and opting for pre-installed enterprise software like SQL Server or SAP.

This pay-as-you-go model ensures that users only pay for the resources they consume, making it cost-effective for various use cases. The downside is that “what you need” is often unknown beforehand. Thus, we have defined the biggest problem and then attempted to forecast EC2 cost. 

How Amazon EC2 Pricing Works

Amazon EC2 pricing is made up of several core components:

Instance Usage
You’re billed for the compute capacity of the instance type you run. This includes the number of vCPUs, amount of memory, and whether the instance is optimized for specific workloads (e.g., compute-optimized, memory-optimized, or GPU-based). More powerful instances cost more per hour, but may complete tasks faster—potentially saving money if workloads are optimized.

Usage Duration and Pricing Models
EC2 supports multiple pricing models:

  • On-Demand: Pay per second or hour with no upfront commitment. Best for short-term or unpredictable workloads.
  • Reserved Instances (RIs): Commit to 1- or 3-year terms for significant discounts—ideal for steady-state usage.
  • Savings Plans: Similar to RIs, but more flexible across instance families and regions.
  • Spot Instances: Use spare capacity for up to 90% off—but with the risk of interruptions. Best for fault-tolerant, stateless, or batch workloads.

Storage Costs (EBS Volumes and Instance Store)
Most EC2 instances use Amazon EBS for persistent storage. EBS charges are separate from instance costs and based on:

  • Volume type (e.g., gp3, io2)
  • Provisioned storage (GB/month)
  • IOPS and throughput (for certain volume types)
  • Snapshots stored in S3

Instance store (ephemeral storage physically attached to the host) doesn’t incur extra cost, but it’s temporary and can’t be detached or backed up easily—use it only when data persistence isn’t required.

Data Transfer Costs
Data transfer charges are often overlooked but can significantly impact your bill:

  • Inbound traffic is generally free.
  • Outbound traffic to the internet or across regions is charged per GB.
  • Within the same Availability Zone, data transfer between EC2 instances is free when using private IPs.
  • Between AZs or VPCs, even in the same region, charges apply and can add up at scale.

Amazon EC2 Pricing Models Explained

Calculating exact prices for AWS EC2 is not easy. There are several factors that determine the price: instance type, Availability Zone (e.g., Singapore vs Ohio), licensing (e.g. Windows license), and AWS pricing models (below) are all variables to consider. 

There are six main models for AWS pricing:

  • Free Tier Pricing
  • Spot Pricing
  • Reserved Pricing
  • On-Demand Pricing
  • Dedicated Hosts Pricing
  • Savings Plan Pricing

Let’s discuss each pricing model in detail. 

Free Tier

The Amazon Free Tier serves as a way to get started with AWS and learn about its offerings before committing to paid usage. Cloud users can access AWS Free Tier and test the features before making a long-term commitment. The Free Tier typically includes a limited usage level for select services, such as Amazon EC2, Amazon S3, and Amazon RDS. 

When to use Free Tier

  • You’re new to AWS and want to try out EC2 at no cost
  • You’re testing small-scale apps or dev environments
  • You want to validate service behavior before scaling

Spot Pricing

Spot Pricing is the next cheapest option. Spot Instances are spare computing resources available on the AWS cloud. With Spot Pricing, users can bid on unused EC2 instances, and if their bid exceeds the current Spot price, gain access to the instances. Spot Instances are ideal for applications that have flexible start and end times or that can handle interruptions. They allow users to take advantage of cost savings, sometimes up to 90% off the On-Demand price. 

Spot Instances are also subject to interruptions when Amazon EC2 needs the capacity back, meaning that applications designed to use Spot should be fault-tolerant. The user will receive a two-minute notification before termination.

When to use Spot Pricing

  • You’re running stateless, fault-tolerant workloads like CI/CD, batch jobs, or big data processing
  • You want to reduce compute costs for dev/test environments
  • You can architect around interruptions and maintain SLAs

Reserved Instances

Reserved Instances (RIs) allow users to reserve EC2 capacity in advance, providing significant cost savings compared to On-Demand Instances. Reserved Pricing is a billing model where customers commit to a one-year or three-year term, paying an upfront fee and a reduced hourly rate for the reserved instances. It’s usually more expensive than Spot Pricing because the customer accumulates costs over several years. AWS applies discounts of up to 70 percent on this plan.

RIs are well-suited for predictable workloads that require long-term usage, providing cost stability and lower hourly rates compared to On-Demand instances. AWS provides both Standard and Convertible Reserved Instances for EC2. It’s best to purchase Convertible Reserved Instances as they provide more flexibility.

To explain further, let’s say the user is in the Eastern United States (Ohio). They choose a one-year commitment plan. 

  • If they pay the whole amount at the beginning of the contract for a1.medium resource, they’ll pay $131. 
  • If they pay a partial upfront fee of $77 for a1.medium RI, they can pay $5.80 for consecutive months, for $146.56 total.
  • If they pay no upfront fee, they can pay $13.51 in each of the 12 months for a total of $162.12.

You can explore the AWS pricing table for updated prices.

When to use Reserved Instances

  • You have steady-state workloads that run 24/7
  • Your usage is predictable and unlikely to change soon
  • You’re able to commit to a specific instance family and region

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On-Demand Pricing

On-Demand prices let users pay as they go, offering flexibility and no upfront costs. With On-Demand Pricing, users pay for the compute capacity they consume on a per-hour or per-second basis, depending on the instance type. On-Demand prices can be 27 percent to 35 percent higher than Reserved Pricing. This model is best suited for applications with unpredictable workloads, where instances are needed immediately and without long-term commitments. 

When to use On-Demand Pricing

  • You have unpredictable or bursty workloads that need flexibility
  • Operations that cannot have any interruptions, such as a migration process
  • You want flexibility without upfront commitment

You can use an On-Demand pricing calculator for more details.

Dedicated Hosts

AWS Dedicated Hosts provide a physical EC2 for a specific account, allowing greater control over the underlying hardware and instance placement. Dedicated Hosts Pricing offers a per-hour fee for the host, regardless of the number of instances running on it. Dedicated Hosts are typically used by organizations that have specific compliance, regulatory, or licensing requirements that necessitate dedicated hardware resources.

 Users can choose On-Demand or Reserved Pricing for Dedicated Hosts. AWS provides a table explaining the prices of various Dedicated Hosts. 

When to use Dedicated Hosts

  • You have strict compliance or regulatory requirements
  • You need per-socket or per-core software licensing (e.g., Oracle, Windows Server)
  • You want physical server isolation from other tenants

Savings Plans

AWS Savings Plans offer a flexible pricing model that allows users to commit to specific usage at discounted prices. With AWS Savings Plans, users pay a fixed hourly rate for a period of either one or three years. There are two types of Savings Plans:

  1. EC2 Savings Plans apply to instances with a specific region and provide discounts of up to 72 percent. They are ideal for fixed applications that are unlikely to change over time.
  2. Compute Savings Plans allow you to purchase an amount of compute time for EC2 instances, Lambda, and Fargate. They offer more flexibility and are ideal for large organizations whose demand for resources keeps changing.

When to use Savings Plans

  • You want discount flexibility across instance types, OS, or regions
  • Your usage patterns change but overall spend is consistent
  • You want simplified commitment management over Reserved Instances

Key Factors to Consider: Amazon EC2 Costs

Several operational and architectural decisions can significantly affect how much you pay for Amazon EC2. Below are the most important factors to consider when estimating or managing your compute spend.

Clock Hours of Server Time

You’re charged for how long your instances are running—regardless of whether they’re actively doing work. If you leave instances running during off-hours or forget to shut them down after testing, you’re still billed. For On-Demand, AWS charges per second (with a minimum of 60 seconds) for Linux instances, and per hour for some Windows instances. Stop or terminate idle instances to avoid wasted spend.

Instance Types

The instance family you choose determines the compute resources—and the price—you’re paying for. Each instance type is optimized for a specific workload (e.g., compute, memory, storage, GPU). Choosing an overpowered or mismatched instance type can result in unnecessary costs. For example, using an r5.4xlarge for a low-memory app means you’re paying for unused memory. Always rightsize based on real usage metrics.

Pricing Models

Your pricing model choice has the biggest impact on EC2 savings potential. AWS offers On-Demand, Reserved Instances, Savings Plans, Spot Instances, and Dedicated Hosts. Spot is cheapest but comes with the risk of interruption. RIs and Savings Plans require long-term commitments but deliver consistent discounts. Choosing the right model depends on workload duration, predictability, and fault tolerance.

Number of Instances and Provisioning Resources

More instances mean higher costs—but so does poor provisioning. Running too many instances or over-allocating CPU and memory wastes budget. Conversely, underprovisioning can lead to performance bottlenecks. Use tools like Compute Optimizer or nOps rightsizing to match instance count and specs to your actual workload needs.

Load Balancing with ELB

Elastic Load Balancing (ELB) improves availability but adds hourly and data processing charges. Each load balancer has a base hourly cost and a per-GB charge for data processed. If your app doesn’t require high availability across zones, or if you’re routing minimal traffic, you might not need ELB—or might be able to consolidate load balancers.

Elastic IP Addresses

Elastic IPs are free—until you misuse them. AWS allows one free Elastic IP per running instance. But you’re charged for each additional one, and for any EIP that’s not attached to a running instance. Review and release unused Elastic IPs to avoid silent cost bloat.

Auto Scaling

Auto Scaling can reduce costs—if it’s configured properly. The goal is to dynamically match instance count to demand. But if your scaling thresholds are too aggressive or cooldown periods too short, you could end up launching too many instances. Regularly review scaling policies and metrics to make sure Auto Scaling works for you, not against your budget.

Additional Costs Affecting Amazon EC2 Costs

Beyond compute and instance usage, there are several supporting services and infrastructure elements that can significantly affect your EC2 bill. These often go unnoticed until they start to add up.

  • Data Transfer: Data transfer charges can quickly become a major cost center—especially for high-throughput applications. AWS doesn’t charge for inbound traffic or data transferred between instances in the same Availability Zone using private IPs. But traffic going to the internet, across Availability Zones, or between regions is billed per GB. If you’re running a web app serving global users, or replicating data across regions, these costs can quietly balloon.

  • Elastic Load Balancing (ELB): While ELB helps with fault tolerance and scaling, it incurs additional costs beyond your EC2 charges. You’re billed by the hour per load balancer and by the amount of data processed. If you’re running many small applications with their own load balancers, consolidating them could cut costs. Also, poorly tuned health checks or unnecessary cross-zone routing can inflate usage charges.

  • EBS Snapshots: Snapshots are stored in Amazon S3 and billed based on the amount of data stored—not the total size of the volume, but the incremental changes. This means frequent snapshots or retaining too many versions can drive up costs. It’s best practice to automate snapshot retention policies and periodically delete old snapshots that are no longer needed.

  • NAT Gateway: NAT Gateways allow private instances to access the internet, but they come with hourly rates and per-GB data processing charges. If you’re routing all outbound traffic through a NAT Gateway—especially large volumes—you might face unexpected costs. For high-volume use cases, replacing NAT Gateways with NAT Instances or consolidating traffic flows can result in significant savings.

AWS Price Offering Over Time Trend

As of May 2025, AWS offers over 5 million distinct EC2 configurations, a significant increase from 4.45 million in June 2023. This growth is largely attributed to the expansion of AWS Regions and the introduction of new instance types. For instance, the number of AWS Regions has grown to 36, with 114 Availability Zones. 

Notable Observations:

  • u-6tb1.metal Instance Availability: The u-6tb1.metal instance, designed for SAP OLAP workloads, was previously available in multiple regions, including Asia Pacific. As of May 2025, its availability is limited to select regions, such as Europe (Zurich) .

  • Region with Most Offerings: The EU (Ireland) region now hosts the highest number of EC2 offerings, surpassing US East (N. Virginia), which previously held this position.

  • AWS GovCloud (US): This region continues to provide specialized services for U.S. government agencies, operated by U.S. citizens on U.S. soil, ensuring compliance with stringent regulatory requirements.

The rapid expansion of EC2 offerings underscores the importance of leveraging automation tools like nOps to automatically optimize instance types and compute usage on your behalf. 

Managing your Amazon EC2 Spend with nOps

nOps Compute Optimization constantly manages the scheduling and scaling of your workloads for the best price and stability. Here are a few of the benefits:

  • Optimize your RI, SP and Spot automatically for 50%+ savings — Copilot analyzes your organizational usage and market pricing to ensure you’re always on the best options.
  • Reliably run business-critical workloads on Spot. Our ML model predicts Spot terminations 60 minutes in advance.
  • All-in-one solution — get all the essential cloud cost optimization features (cost allocation, reporting, scheduling, rightsizing, & more) 

Copilot is entrusted with over 2 billion dollars of cloud spend. Join our satisfied customers who recently named us #1 in G2’s cloud cost management category by booking a demo today.

Frequently Asked Questions

What are the 3 main pricing options with EC2?

EC2 offers On-Demand, Reserved Instances, and Spot Instances as its primary pricing models. On-Demand is pay-as-you-go with no long-term commitment, ideal for short-term workloads. Reserved Instances require a 1- or 3-year commitment for significant discounts, best for steady-state usage. Spot Instances let you bid on unused capacity for up to 90% off but can be interrupted. Choosing the right option depends on workload predictability, tolerance for interruptions, and cost optimization goals.

How to calculate AWS EC2 cost?

To estimate EC2 costs, consider instance type, pricing model, region, storage, and data transfer. Use the AWS Pricing Calculator to input specific configurations and get a cost estimate. On-Demand pricing is based on per-second billing, while Reserved Instances and Savings Plans offer discounts for long-term usage. Don’t forget to factor in attached EBS volumes, bandwidth, and licensing if applicable. 

Is AWS EC2 free to use?

AWS EC2 offers limited free usage through the AWS Free Tier, which includes 750 hours per month of t2.micro or t3.micro instances for the first 12 months after account creation. This allows you to run a single small instance continuously during the month. Beyond that, EC2 is not free and charges apply based on instance type, usage duration, region, and any additional resources like EBS volumes or data transfer. 

Is EC2 cheaper than VPS?

EC2 can be cheaper than traditional VPS hosting when you optimize with Spot Instances, Reserved Instances, or automation tools. However, VPS providers often offer flat-rate pricing that may seem simpler and cheaper for small workloads. EC2’s flexibility and scalability are advantages, but managing it requires more expertise. For startups or small apps, VPS may be more affordable. For scalable, production-grade infrastructure, EC2 typically delivers better long-term value.