Convertible Reserved Instances

Convertible reserved instances are a more flexible version of AWS reserved instances. Like standard reserved instances, they commit the customer to a one-year or three-year term in exchange for a lower rate than on-demand pricing. Unlike standard reserved instances, they can be exchanged for different reservations during the term, for example to move to a newer instance family, a different operating system or a different size, as long as the new reservation is of equal or greater value. The trade-off is a smaller discount, which AWS describes as up to 66% compared with on-demand prices.

Convertible reservations were designed for organizations that want the savings of a long commitment but expect their infrastructure to change. Since the introduction of savings plans, which offer similar flexibility with less management effort, convertible reserved instances are used less often, but they remain relevant in some situations. For IT financial management, they illustrate the trade-off between discount depth and flexibility that runs through all commitment decisions.

Definition of Convertible Reserved Instances

A convertible reserved instance is a reserved instance that can be exchanged for one or more other convertible reserved instances with different attributes during its term. The exchange must result in a reservation of equal or greater value, and the term end date stays the same.

Convertible reservations are available for one-year and three-year terms and with all upfront, partial upfront or no upfront payment options.

How Exchanges Work

To exchange, the customer selects the existing convertible reservations and the target configuration, such as a new instance family or operating system. AWS calculates the value of each and, if the new reservation is worth more, the customer pays a true-up charge for the difference.

Exchanges can combine or split reservations, for example exchanging several small reservations for one larger one, which helps match reservations to changing usage.

There is no limit on how many times a convertible reservation can be exchanged, although each exchange must meet the equal-or-greater-value rule.

Limitations

Convertible reserved instances cannot be sold on the AWS Reserved Instance Marketplace, unlike standard reserved instances. Once purchased, the commitment remains until the end of the term, even if it is exchanged.

Because exchanges cannot reduce the value of the commitment, they help when usage changes shape but not when it shrinks. If usage falls overall, the reservation may still go partly unused.

Managing exchanges also requires effort and attention, since the benefit depends on someone noticing that usage has changed and acting on it. Organizations that do not monitor their reservations closely may find that convertible reservations end up underused, just like standard ones.

Importance of Convertible Reserved Instances in IT Financial Management

Convertible reservations address a key risk of standard reservations: being stranded when workloads move to different instance types.

Their role has changed over time. When they were introduced, they were the main way to combine long-term discounts with flexibility. Today, that role is shared with savings plans, which many organizations find simpler to manage.

Understanding when they make sense helps organizations choose the right mix of commitment options rather than defaulting to one.

Flexibility for Changing Workloads

Organizations that plan to modernize their infrastructure, for example by moving to newer and more efficient instance families, can use convertible reservations to keep their discounts through the change.

This allows engineering teams to adopt better instance types without the FinOps team having to absorb stranded reservations, aligning rate optimization with usage optimization.

Three-year convertible reservations can offer larger discounts than one-year options while keeping some flexibility for a long term.

Comparison With Savings Plans

Savings plans offer similar or greater flexibility automatically, applying across instance families without any exchange process. Compute Savings Plans also cover some serverless services and multiple regions.

As a result, many organizations now use savings plans instead of convertible reservations for new commitments. Convertible reservations may still be useful for certain services or when they offer a better rate for a specific situation.

Comparing the effective discount and management effort of each option, using metrics such as effective savings rate, helps decide which to use.