What is Prompt Caching and how much does it save on LLM APIs?

Prompt Caching is an API optimization that allows LLM providers to store frequently used prompt prefixes (such as system instructions, codebase context, or large reference documents) in memory across requests.

How Prompt Caching Saves Costs

Instead of reprocessing identical tokens on every API call, the provider checks if the prefix matches a cached checkpoint:

• Anthropic Claude: Offers up to a 90% discount on cached input tokens.
• OpenAI GPT-4o: Provides a 50% discount on cached prompt tokens automatically.
• Latency Reduction: Processing speed increases by 2x to 4x for large system prompts.

You can estimate exact prompt caching savings using our interactive LLM API Cost Calculator.