“Reserved Instances are complementary to existing Amazon EC2 On-Demand Instances and give businesses even more flexibility to reduce computing costs. Because Reserved Instances function identically to existing Amazon EC2 On-Demand Instances, you can now plan for an anticipated amount of capacity using Reserved Instances and then instantly spin up On-Demand Instances if your compute needs exceed you reserved capacity. Of course, you can also choose to handle all of your capacity needs using only On-Demand instances or only Reserved Instances — it’s entirely up to you. Reserved Instances are available in 1-year or 3-year terms.”
—The Amazon Web Services Team
Really worth it for an on demand application.