Images of a tankless and heat pump water heater transposed next to each other

Hot water is a rare luxury for many across the globe, but it’s seen as a necessity in the US and the rest of the Western World.

Because we use hot water daily, the resource can wreak havoc on our utility bills — but are tankless water heaters a solution to this problem?

Tankless water heaters warm water more efficiently, lowering utility bills. The units are energy efficient, only heating the water necessary at any given time. This energy-efficient system lowers electric or gas bills by avoiding the standby losses that conventional systems suffer from.

Tankless water heaters complete their task efficiently, require little maintenance, and last for many years.

The units take up less space than conventional storage tank water heaters and have lower running costs.

This article considers the main costs of tankless water heaters to help determine whether a tankless water heater is the best fiscal decision for your household.

So, read on to find out more about this important subject.

How Much Does a Tankless Water Heater Save?

Condensing water heaters are more efficient than conventional non-condensing models because they conserve more heat by recovering it from flue gases before they are discharged to the atmosphere.

Tankless water heaters save different amounts depending on how much hot water a household needs.

The Department of Energy defines a standard water usage household as one that uses up to 41 gallons. Tankless water heaters in these homes are 24 to 34 percent more energy efficient than storage tank units.

High-volume households use up to 86 gallons of water daily. On-demand water heaters are 8 to 14 percent more efficient than storage tank models in these households.

What do these statistics mean in a fiscal sense?

Comparing electric tank storage and on-demand water heaters, the on-demand model saves users $44 annually. Gas tankless water heaters save users $108 yearly versus gas storage tank heaters.

How Do Tankless Water Heaters Save You Money?

A man's hand turning a dial on the side of what could be a tankless water heater to save energy and money.
Tankless water heaters can save you money and they do this in three main ways – more efficient heating, having a longer life and being cheaper to maintain.

Tankless water heaters save homeowners a considerable amount of energy and money.

The initial cost of investment and installation are higher than tank water heaters, so how and where do the on-demand units create savings?

Tankless water heaters conserve energy and lower costs in three ways: heating more efficiently, living longer lives, and cost-efficient maintenance.

Efficient Heating

A hand placed flat beneath a tray holding the words "save energy" with a light bulb cartoon to the left. The hand belongs to a man wearing a suit with the cuff visible.
You can save energy and money by turning your hot water heater down. Learn more about saving energy with our free Energy Efficiency eBook.

Understanding how tankless water heaters save you energy requires understanding how both tank storage water heaters and on-demand units work.

The simplest explanation is that tank storage water heaters constantly heat water, maintaining the water at a consistently high temperature, while the tankless variety heats water on demand.

Tank Water Heaters

Tank water heaters consistently use and drain energy. A tank water heater continually heats between 40 and 60 gallons (151 to 227 liters) of water.

The devices warm water through the following steps:

  1. Set the thermostat for how hot you want your water. The higher the temperature, the greater the energy expenditure.
  2. A heating component – electric, oil, or natural gas – located at the bottom of the tank raises the temperature of the liquid to the desired level.
  3. The hot water rises to the top of the tank, allowing the heating element to bring the lower, cooler water back up to the desired temperature.

The heater switches off briefly during periods when the water is up to the desired temperature; however, it turns back on throughout the day and night to ensure the water remains hot and ready for the moment someone needs it.

This system uses considerable energy because the system suffers standby losses as heat escapes through the tank wall and the water cools down.

The tank prepares the water for use at a moment’s notice, meaning the heating element must continually kick in to maintain its temperature. 

Tankless Water Heaters

Tankless water heaters only warm the water you use as you use it. Their mode of operation can be described as follows.

  • You set the thermostat to your desired temperature, with higher temperatures using more energy and costing more money.
  • When you turn on a tap or faucet, water flows into the tankless unit.
  • A natural gas or electric element heats your water.

The tank only heats the water you are using. Unlike a tank storage unit, on-demand water heaters don’t need to maintain a heat source to achieve a consistent temperature.

While tank storage water heaters run constantly, on-demand systems only run while you need hot water, heating more efficiently and saving energy.

Precisely how much energy a tankless water heater saves you depends on whether your model uses electricity or gas as its heating element and the usage patterns of your household.

  • Electric: Electric tankless water heaters have lower flow rates than gas units, meaning users won’t get as much hot water as quickly.
  • Gas: While gas tankless water heaters have faster flow rates, they also use pilot lights. The pilot light stays constantly lit, burning gas all the time. Some gas models come with intermittent ignition devices instead of pilot lights, which saves energy.

Tankless water heaters raise the temperature of the liquid from cold to the desired warmth in 15 seconds.

Device Longevity

Consistent wear-and-tear exacts a price from a device. Storage tank water heaters run more consistently to ensure the fluid is at the correct temperature, while tankless models run for short bursts of time as hot water is needed.

Tank storage water heaters max out at ten years. After a decade, some experts advise owners to replace the unit even if the device is not showing symptoms of age.

However, any of the following indicates your heater is dying, and you should replace the device:

  • Rust on the tank or in the water
  • Unusual noises
  • Leaks
  • Water isn’t heating

Ten years is widely considered the maximum length of service for a tank storage heater; many people need to replace their tanks before then.

On the other hand, tankless heaters live long, prosperous lives, heating your water for up to 20 years.

Like tank storage models, on-demand water heaters tell you if they need to be replaced sooner in the following ways.

  • Rusty water
  • Knocking sounds
  • Leaks
  • Clouded water
  • Cold water

A well-maintained tankless water heater’s long life saves the owner money.

Cost-Efficient Maintenance

A technician makes an adjustment to a heat pump water heater
Maintaining a tankless water heater normally costs less than a conventional water heater that uses a tank.

Regular maintenance ensures the most extended life for a water heater. For both tankless and tank storage units, that translates to semi-annual visits.

While yearly maintenance is effective, two visits annually ensure the best results.

Plumbers charge 75 to 300 dollars for tank heater maintenance visits. Tankless water heater maintenance visits run between 45 and 200 dollars.

Additionally, it’s relatively simple to repair on-demand models; tankless water heaters have common, easily accessible replacement parts.

Faulty parts in storage tank water heaters are often irreplaceable and necessitate a new unit.

What Are the Disadvantages of Tankless Water Heaters?

A yellow arrow with Pros written on it and a pink arrow with cons written on it pointing in opposite directions.
The pros and cons of a tankless water heater need to be carefully considered before you decide whether you should install one in your home.

Tankless water heaters require a more significant initial investment than a storage tank model. Between the cost of the unit and the installation, an on-demand water heater accrues a hefty price tag.

Tankless water heaters cost between $800 and $6,000, depending on size — the unit’s installation costs between $4,500 to $6,500. Between the installation and the unit’s price, on-demand water heaters cost three times what water storage tank models do.

While you will see immediate savings on your utility bill, determining whether or not a tankless water heater is the best economic decision for you requires factoring in the initial investment.

According to Consumer Reports, gas tankless water heaters take 22 and 27 years to pay back the initial investment. In comparison, electric on-demand water heaters need between 12 and 20 years to recoup the investment.

How Do Tankless Water Heaters Work?

Tankless water heaters use a heating component to warm water on demand. Tankless water heaters use an electric or gas element to fulfill the heat demand.

While traditional water heaters hold a supply of hot water in reserve until you need it, tankless systems work like a circuit, heating only the liquid you need at the time:

  • When you turn on a faucet, water passes into the heater.
  • The heating elements warm the water.
  • The heated water comes out of your faucet.

This method allows total control over your household water usage since it only heats the water you use. 


Tankless water heaters reduce utility bills through their energy-efficient hot water heating methods.

The units heat only the water needed for the moment, saving electricity or gas.

However, the models are expensive initial investments with high installation costs.

Whether or not switching to a tankless water heater makes financial sense depends on how long you intend to live with it.

Did you know that certain tankless water heaters could qualify for tax credits? Find out more in our article, “Tankless Water Heaters: Tax Credits and Rebates You Can Get.

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