Traditional water heaters store water in a tank where it is kept warm until needed for use. This means that energy is being used to keep water heated even when you don’t need it. Tankless water heaters models, on the other hand, heat water as it flows through the device, letting you cut down on energy costs.

How Much Are The Tankless Water Heater Savings?

Sounds too good to be true right? Reports vary on how much money tankless water heaters actually save. According to Energy Star, they can save $100 or more per year, while Consumer Reports estimates savings to be only $70-80 per year. To estimate your savings, think about your family’s water usage.​ Below we have done an analysis of annual savings using a tankless water heater vs a standard tank water heater is based on the average cost to run an electric tank water heater per the DOE Average Energy Costs.

Tank vs. Tankless Annual Operating Costs

UnitEnergy SourceEnergy Factor (EF)Annual  Costs
Standard 50-Gallon Gas Storage TankNatural Gas0.60$273
Standard 50-Gallon Gas Storage TankPropane0.60$646
Standard 50-Gallon Electric Storage TankElectricity0.95$557
Mid-Efficiency Non-Condensing TanklessNatural Gas0.82$200
Mid-Efficiency Non-Condensing TanklessPropane0.82$473
High-Efficiency Condensing TanklessNatural Gas0.96$171
High-Efficiency Condensing TanklessPropane0.96$404

Making the switch to a tankless water heater is a big investment, and there is more to consider than just the high upfront cost and long-term savings. Tankless models take up significantly less space, leaving more room for your couponing stockpile to grow. You may also be able to lower the upfront purchase cost by seeing if your purchase can qualify for a tax rebate. You may be able to get up to 10 percent back on the purchase of a new, energy-efficient water heater making the initial investment more feasible. Click here for more information.

Potential Savings: Assume the average lifespan of a water heater is 13 years (although it is estimated that many tankless models can last for up to 20 years). If your new tankless water heater saves you $100 per year over 13 years, you will have saved just over $1,300 dollars in energy bills. Since the tankless model only costs $700 more, to begin with, that’s approximately $500 in net savings when you add the cost of purchase with the cost of use. When you also consider the reports that you will have to replace tankless models less frequently, the potential savings become even more significant.

How Much Do Tankless Water Heaters Cost?

Tankless water heater models do cost more than traditional water heaters. There is a wide range of prices for both traditional and tankless models depending on the brand, power, and energy efficiency. You can get a portable tankless water heater for as low as $100, while a premium tankless model will cost around $1,200. It can be hard to imagine that this significant upfront cost will pay off in the long run, but in order to know for sure, you really have to take a hard look at long-term operating costs.

How Long Does A Tankless Water Heater Last?

While a typical tank water heater is supposed to last 10 to 15 years, most tankless water heaters are estimated to last up to 20 years. If you’re planning to stay in your home for a while, that’s a hefty replacement fee you’re saving. Even if you’re not going to stay in your home for that long, it’s nice to pay it forward towards the overall cost savings of homeownership.​

What Is The Energy Efficiency Of A Tankless Water Heater?

The energy factor (EF) indicates a water heater’s overall energy efficiency based on the amount of hot water produced per unit of fuel consumed over a typical day. This includes the following:

  • Recovery efficiency – how efficiently the heat from the energy source is transferred to the water
  • Standby losses – the percentage of heat loss per hour from the stored water compared to the heat content of the water (water heaters with storage tanks)
  • Cycling losses – the loss of heat as the water circulates through a water heater tank, and/or inlet and outlet pipes.

The higher the energy factor, the more efficient the water heater. However, higher energy factor values don’t always mean lower annual operating costs, especially when you compare fuel sources. Product literature from a manufacturer usually provides a water heater model’s energy factor. Don’t choose a water heater model based solely on its energy factor. When selecting a tankless water heater, it’s also important to consider the size and first-hour rating, fuel type, and overall cost.​