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Depending on the model, tankless water heaters can be installed inside or outside the home. Photos (left to right): omiksemaj, Flickr; tom.arthur, Flickr

All those steamy hot showers you enjoy so much? They're costing you big-time. Hot water is the US consumer's third largest energy expense, accounting for around 12% of the average utility bill. A water heater upgrade is one way to cut costs. But it also leads to the question of whether to replace it with another traditional storage tank heater, or to opt for a tankless water heater. Should you or shouldn't you?

Let's take a closer look at water heaters.

Storage tank water heaterA conventional storage tank water heater. Photo: Vagabond Shutterbug, Flickr

A conventional water heater draws hot water from a thermostatically-controlled storage tank that refills automatically. The entire tank of hot water is held on standby 24/7. A lot of energy is gobbled up keeping the temperature constant, replacing hot water you've used and compensating for heat lost to the surrounding environment.

A tankless heater, on the other hand, conserves energy because it doesn't keep hot water in reserve. Instead, water is heated on an as-needed basis, routed through a powerful heating unit whenever a hot water faucet is turned on. Typically gas-fired (although you can buy electric versions, too), tankless heaters depend on electronic sensors to detect and regulate water temperature and flow.


When it comes to space efficiency, energy efficiency, and durability, tankless water heaters can't be beat.

Tankless heaters are appealingly space-efficient, consisting of just a compact rectangular unit attached to the wall. Compare that to storage tank heaters, which typically hold 20 to 80 gallons of water. For homeowners with space limitations, tankless just makes more sense.

Then there's the obvious energy savings. Tankless water heaters are getting lots of buzz these days, in large part because many now boast the coveted blue ENERGY STAR sticker, which indicates that the product meets strict energy-efficiency standards set by the government. Because they only heat water on an as-needed basis, monthly heating bills are usually lower.

Manufacturers claim a much longer lifespan for tankless heaters: over 20 years compared with just 10 years for typical storage water heaters. That's because tankless heaters contain replaceable parts that can be repaired when a problem occurs; storage heaters often must be trashed after a breakdown. For that reason, it's also fair to say that tankless heaters are more environmentally friendly, since they reduce landfill waste.

The main downsides of tankless water heaters are cost, installation, and maintenance.

Tankless water heaters cost a lot more than storage tank water heaters up front.
Gas-powered tankless units range from a couple hundred to $1300, compared to standard tank heaters, which are generally in the $150 to $500 range.

Installation is also more complicated and expensive for tankless than for tank heaters. Electrical outlets have to be installed to handle the unit's fan and thermostat. A gas supply line and venting system are usually required, too. Plus, you have to spend around $1000 or more on installation, compared with just a few hundred dollars for storage tank heaters. Some tankless water heaters can be installed on the inside or outside of the house.

Tankless heaters should be serviced about once a year to remove calcium buildup. Exactly how often this servicing is required depends on water hardness levels in your town; harder water causes more calcium buildup.

Another Upside: Rebates and Tax Credits
More good news: the government wants you to invest in energy-efficient home improvements, so numerous rebates and tax credits have popped up to offset the price of purchase and installation.

Now is actually the perfect time to buy, since state-by-state rebates are finally coming into effect. Interested? Check out this list of rebate kickoff dates by state.

Tax credits: You may also be eligible for a Federal Stimulus Package tax credit. This trims 30% off the price of certain ENERGY STAR-rated tankless heating units, awarding you up to a maximum of $1500 off total purchase and installation costs. For more details on rebates and tax credits, visit the Noritz and Takagi websites. Check manufacturer sites, including those for Rheem and Bosch, for listings of which tankless water heater models qualify for government assistance.

Be sure to bookmark these two essential Web resources, too: the Database of State Incentives for Renewables & Efficiency, which provides a comprehensive list of tax rebates available to consumers on a state-by-state basis, and the US Department of Energy's ENERGY STAR Approved Energy Efficient Appliance Rebate System info page.


Brand: If you do decide to upgrade to a tankless water heater, do some research to find the brand that's right for you. Big-name manufacturers include Takagi and Noritz, as well as more familiar household brands like Rheem and Bosch.

Size: You'll also need to choose the right size tankless heater for your home and region. This is often calculated in terms of gallons per minute (gpm) that a given heater can produce. This can get complicated, since the gpm ratio depends, in part, on ground temperature relative to your required water temperature.

Your location: Tankless heaters draw and heat water directly from the public water supply. One tankless heater may cost X dollars per month to operate in a mild Southern winter. However, that exact same heater would cost a whole lot more in a freezing Northern winter simply because it is drawing upon much colder groundwater.


The heating mechanism must sense a minimum water flow before kicking into operation. If you like to conserve water and energy by using just a slow trickle of hot water for certain tasks (such as shaving), you may be out of luck. It's the full flow or nothing.

Because tankless heaters depend on electric controls and there's no backup reserve water, you will lose hot water during extended power outages. That may not happen very often, but it's definitely something to be aware of.

You won't get instant hot water from a tankless heater.
Just as with a storage tank heater, you must run the hot water faucet to rid the pipes of cold water before the hot water starts flowing.

A final word of advice: Unless your existing water heater is on its last legs and absolutely must be replaced, there's no urgency to switch to a tankless version. If lowering your utility bill is your primary concern, there are lots of ways you and your family can spend less on hot water this winter. Check out this page of energy-saving tips from the US Department of Energy to get started saving!

See also:
How to Install a Propane Tankless Water Heater
Water Heaters Have Gone Hybrid

  • Michael

    I love my tankless water heater. We have a Bosch model that doesn't use any electricity. It has a small turbine that powers the sparker for the Natural Gas ignition. We have had it for a few years now and haven't had any problems.

  • Michael

    I installed a Bosch unit in the mid '90's. Our water is very hard but the unit has functioned as designed. I know I have saved over the years. We really like it when we have company and all can have hot water for their bathing needs. I even made an outside shower becasue my wife wanted one. For all you tree huggers we have well water with a septic tank but gray water for the outside shower. Great investment.

  • pat9639

    I am a Plumber, I beleive the tankless water heater is not the way to go. Based on what it cost's in the first place, a 50 gal. tank type gas fired water heater cost's, installed approx. $1,250.00. Based on the articles numbers above, 12% of someones heating bill is hot water. 12% of a $250.00 bill is approx. $30.00/month or about $1.00/day.
    A tankless heater with the same capacity would cost the consumer approx. $2,600.00 installed, maybe more. The article above doest not address how much the tankless heater cost's to run. Let's say it 50% cheaper to run. That means it will cost the consumer approx. $.50/day, a savings of $15.00/month or $180.00/ year. Without any other cost's added, it would take the consumer 7-1/2 years to recoup the additional investment. Now, what about the annual service on this heater, deduct the service of at least $150.00 w/o any parts,annually they have a savings of less than $30.00/year. I beleive the tankless heater has its place because of space restrictions, but for most consumers, stick to the tank type heaters for not only your most economical install, but for the lack of need of maintainance, & the storage of hot water any time, even in a power outage.

  • Tom

    pat9639: To a large extent, I agree with your comments. I am not a plumber, but have worked on my family's and my own household plumbing systems for more than 50 years.

    I don't condemn the tankless heaters, but this article's author was pretty "loosey - goosey" with her supposed facts. It almost appeared that she was paid by one of the tankless manufacturers to write her article. I find it suspect that she actually identified brands. Hmmmm...

    On both her "pros" and "cons":
    She claims a lower operating cost, but does not present numbers or proof. As you pointed out, upfront costs may dwarf the expected savings. People can afford $30/mo., not $1,500 in a lump.

    She claims a longer operating life. I've never had a tank heater last less than 20 years.

    Electrical connections are required for electric heaters. Gas connections and exhaust vents are required for gas heaters. So, what makes the tankless any different?

    Both types of heaters should be serviced/flushed at least once a year to remove sediments and calcium/magnesium precipitation.

    All heaters must be sized for the anticipated household usage.

    Not all houses rely on a public water system. Except for when I was in college and for a few years afterwards, my residence has been supplied by a water well.

    Why does she assume all public water systems rely on groundwater? To my knowledge, the largest cities in the US rely on surface water.

    Electric tank heaters will also go cold during power outages.
    Gas heaters on water wells will stay hot, but provide no water during power outages.

    And so on....

    Ms. Rixxon may be a nice person and a great advocate of tankless heaters, but she needs to restrict her articles to recipes and quilting bees.

  • JD

    All of what you said is true, but you forgot one thing. How much is efficiency, convenience and quality of life worth to people who can afford it? Tank type hot water heaters can run out of hot water if two baths or showers are taken simultaneously, which is a pain. On top of that, the article misstates another important issue. Tankless hot water heaters need not be placed in the utility area of your home. They can also, and usually are by savvy owners, be placed at the point of use. They are even sometimes called "source point h/w heaters". That means that you can place one in the wet wall directly behind your bathroom faucets which completely eliminates the lag time one waits for hot water to start flowing. Turn the water on, poof, it's hot. That's worth an extra couple thousand to me and many other happy users of these water heaters.

  • irritated

    Excellent analysis, Pat, but you left out an important cost that negates the alleged energy savings for even more years on end.

    The tankless heaters may require a serious electrical modification to enable the unit to be used. I had a double pole circuit available for replacing an old gas tank heater with an electric tank heater. In order to connect a suitable tankless for a small commercial building, I needed to have THREE double pole circuits available to deliver enough hot water for all of the demands.

    For the uninitiated, a double pole circuit needs two circuit breaker box slots for the double-wide breaker. If you need to install either two (for a smaller tankless heater) or three (for a large home or commercial building) double pole breakers, then you need to have either two or three pairs of slots available. One double-pole needs to installed on one side of the breaker box and the other two installed on the other side, in order to spread the load on your service entrance.

    The plain fact is that many existing buildings may not have the capacity, either slot-wise or ampacity, to begin to connect the tankless heater to your electrical panel. I would not let a plumber tell me that he could make the electrical installation himself. Get a professional electrician to make this judgment call.

    The other downside is that installing the high-amp wires is that it will be expensive to run the wires, especially if code requires that conduit be used. The longer the run, the higher the cost since the electrician will have to use a larger gauge wire (#8 ga. instead of the usual #10 ga.) and use a larger conduit to accommodate the thicker wires and higher amp use. You probably should be thinking of $500-1000 more when figuring out a rough budget to determine the energy savings payoff term.

    Another obstacle is that my code requires that the tankless heater be installed on an outside wall, not on an interior or closet wall. I was told that it was because the tankless heater can get hot. (Izzatso? Wouldn't that mean that it wastes energy? I never felt my tank heater get hot to the touch!) If you have to locate the tankless on an outside wall, this might entail a much longer electrical run, as well as reworking the plumbing to connect the water supply and hot water output back to the house plumbing. There goes any possible savings from converting to a tankless.

    I replaced an old gas unit because the commercial gas rates were ungodly high. There was a minimum $200 billing per month, which included about $70/mo for gas I never used in a vacant building, and it was the only gas appliance being used during the five or six months of the year when the gas furnace was shut down. I replaced it with a high-efficienct electric unit and installed an Intermatic water heater timer to limit the hours that it would need to reheat water. The savings were about $165/mo during the late spring, summer, and early fall when I didn't need to use gas heating. The new electric tank heater was paid for in less than three months. That was three years ago.

    It would make more sense to install a tankless heater in a new building, when it would be easier to plan for an appropriate location for the tankless and plan for the required ampacity and circuit breaker box slots to accommodate the high-amp demand for the tankless. The high out-of-the-box cost of the tankless and connection expense can then be buried in the cost of the whole building.

    One last bit of advice... plan on reserving three pairs of breaker slots for the tankless heater and installing a larger conduit, even if you think you can get by on a smaller tankless requiring two pairs of breaker slots. You will rue the day when you discover that you need a larger tankless, and find that you went cheap and have no circuits available for connecting a third pair of breakers. Be prepared to explain the false economy to your new teenagers suddenly needing to take two-hour showers every day.

    I agree with an earlier posting; the article seems to be a shill review so biased in favor of tankless heaters. It was probably written by the independent Association of Tankless Water Heater Manufacturers.

    Use your head for calculating the true total cost of retrofitting for a tankless. Saving a few bucks on your electric bill is not worth putting over a thousand bucks on your credit card and then getting screwed by the bank for the ungodly interest charges and late fees and default interest charges when you miss one payment. Someone suggested that the tankless would save you $30/mo on your energy bill, which is just a little more that what you might pay in interest charges on your credit card bill. If you pay the minimum payment, then you will pay if off in about 26 years. You would have needed a replacement tankless long before that, especially if you didn't get it serviced to remove the calcium deposits. I would suggest that installing an Intermatic water heater timer would save you more per month than the true savings of using the finest tankless heater on earth.

  • KC

    THANKS! Living in "green" California, I had been talked into going tankless, but when my water heater stopped working was told it was a special order item, and there was no way I was going without hot water for 2-3 weeks, so went with a tank model they had in stock.

    This is an older house with no insulation in the walls, and when I priced blown-in, as your calculations show for a more efficient water heater, it would take the rest of my life to break even. (The neighbors had it done and saw a 50% reduction in their heating bill, but keep their place warmer than I do, so I'd see a smaller reduction, and my heating bill is only about $300 for the whole year, anyway.)

    Sometimes going green makes no financial sense.

  • NancyY

    We have had a tankless water heater in this house for five years, and I love it. I don't know where the author of this article got those prices, ours was a lot cheaper. We bought it at Home Depot, and installed it ourselves. The only problem was that it didn't work after Hurricane Ike - we had to take cold showers until the power came back on.

  • wehateourrinnai

    we got SUCKERED into a RINNAI tankless by a salesman who basically said it was akin to the second coming of Jesus. "quirks" is a kind euphamism for the issues we have with this PIECE OF JUNK. yes, the flow is a HUGE PROBLEM - when you're washing dishes in the sink do you always want full flow? of course not, water splashes everywhere leaving yet another mess to clean. and God forbid you set the temp a bit too high and try to bring it down a bit because the unit will likely have a hissy fit and reward you with ICE COLD WATER - nice. Now I take a scalding shower rather than risk the alternative freeze out. also don't rinse a dish for five seconds while your wife is in the shower because she'll let out a primal scream when the water goes cold for some reason. then call Rinnai and find out that all your problems have to do with your inadequate or faulty plumbing although you never had a problem before with your old tank heater, and then and have some rube from "technical service" tell you YOU'RE THE PROBLEM and THEN HANGS UP. I'd rip the PIECE OF CRAP out and THROW IT IN THE GARBAGE but of course it cost a fortune so we're STUCK WITH IT FOR LIFE. RINNAI SUCKS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  • vemula884

    Tankless water is good in all respects. It is good only for the owners of 10+ years standard water heater. It may not be good for the people who replaced it couple of years back.

  • Dan Daily

    I would follow the advice of the plumber, he's right on spot! What he didn't mention is the flow is cut in half by most tankless heaters because they can't heat up the water quick enough. If you have a whirlpool tub, it'll be cold before you even get it filled, that's how bad they are. Also, these brand new 98% efficient furnaces: The additional costs over a 80+ are so high, it would take 20 years to recoup the costs and that's assuming you NEVER have a service call. Look at your natural gas and electric bills folks, the actual cost of the energy you're saving is squat. It's the charges the electric company and the gas company put on top of that is what makes it so expensive; NOT the actual energy used.

    Remember: "Energy Star" might sound good, but is has NOTHING to do with your actual bill!

  • Ed

    Dan: Could the greatly-reduced flow be due to an undersized heater?

    Again, it's a cost/benefit ratio. And..., payout time is a big factor in the decision.

    I agree with you on the plumber's comments.
    Also, I like your style.

    Most people don't realize how much of their utility bills are added on fees and "allowed" charges that have nothing to do with consumptive use.

    It's so sad,isn't it?

  • bowlingmatt

    Tankless was the way to go for me. I have a house full of teens that like taking long showers so we never run out of water. Just be sure to get one with a high enough flow rate to run a couple showers or mayber a sink and dishwasher at the same time. A plumber is full of it if they say it cost more to intall than a tank. Think about it a minute. It still needs a vent just like a tank, electric just like a tank, and it is half the size. I can say this because I have been a plumber for 22 years and my father has for 31 years.

  • Brenda Raines

    I have a tankless as well. It was already in this new house I bought two yrs ago.
    MY question is why does it take so long to get hot water two rooms away from the tank? I am wasting so much water by having to run the water before it gets hot. I try to catch the water to use for watering plants but it feels up a bucket so quickly and can't keep enough buckets going to catch it all.
    I have a concrete foundation and think the water pipes may not have been wrapped or insulated as they should have. Would this make any difference? I can't go through the concrete to see if they were insulated now.
    What happens if you don't service the tank every year? I have so many questions but I know I can't get them all from you at this time.
    At this point, I am not impressed by the tank. It is costing me on my water bill.

  • Judith

    I had an EEMax installed when I had my home built six years ago. I could not ask for a better investment. The continous flow of hot water has been wonderful.

  • Coop

    @Tom & Pat: You both make a good point, but you and the author assume the buyer will pay someone else to install the unit. That's a logical assumption given that the author here mentions electric units but fails to say anything else about them. An electric unit would be very simple to install, so homeowners could do it themselves for next to nothing (wire costs, what?, .30/ft?). I'd like to see more data on operating costs of electric v. gas tankless units, versus electric and gas traditional water heaters. We don't have many power outages where I live, and when we have them it's usually warm outside. (Note if you have your own well, you wouldn't have any water in a power outage, either, so I guess it wouldn't matter if the water heater worked.)

    One final note @author: If the water is already hot, you don't need to heat it. That's why they're called "water heaters," not "hot water heaters."

  • Eileen

    Two years ago I did a oil to gas conversion and was thinking of going tankless. After speaking with some of my plumber friends who specialized in heating and was told that tankless is better suited for smaller houses with few fixtures, if at all. Went to high recovery 40 gallon gas fired Rheem water heater and Weill McClain boiler. So far so good, plenty of hot water and a toasty warm house.

  • Ben

    I researched tankless water heaters a few months back...both gas and electric. The differences are the electric had a reduced flow capacity compared to gas (I don't remember actual numbers). But the biggest draw back to electric on-demand water heater was it required 3 60amp circuit breakers to run it. It had 3 stages of heating each one requiring a 60 amp feed. A person would have to put in an additional 200 amp service just to run an electric on-demand water heater. Now look at those installation costs.

  • Myra

    We live in a 3B/2B condo and have had a Champion Tankless for 7 yrs, with no repairs or problems. We installed a spa shower 4 yrs ago and the plumber suggested we add another one because of the number of shower heads. We have not had a problem with it either. It is a Titan. Ours cost around $400 plus installation, which was not as much as stated because we put them in during remodeling. They work perfect and we would not go back to a tank hot water heater. I do notice it takes a little longer to get hot in the winter, but that is not a problem. I have did experience a flow problem in the bathtub, but the faucet was causing that. The plumber adjusted it and it is fine.

  • TedK

    We installed a gas-powered AquaStar tankless in the summer of 1998. The unit cost twice as much as a replacement tank ($600 vs. $300) but we saw our gas bill drop by $30 per month. There is no electrical connection so it works during power outages. Since we mounted it in the same area as the previous tank, there was only minimal rework of venting, gas lines, and water lines required.

    Like all units, there are flow requirements. I just learned to adapt. Instead of a trickle for shaving, I fill the sink (it's about the same amount of water). My unit actually gets hotter the more water is moving. So, I can wash dishes while my wife showers and we both enjoy continual hot water. I prefer a cool shower in the summer after yardwork but the choice is hot or cold (as mentioned in other comments). I get my cool shower by taking it while the dish or clothes washer is running so it keeps the heater triggered. I had thought about adding an in-line smaller tank but the different "changes" to my routine are working. We also have two different temperature settings for the winter and summer months (we're in northeast Ohio) so it's always the same at the faucet.

    One of the biggest things that sold us was the safety of the tankless. We keep the top heat temperature just below what would burn in a shower. This allows our kids to bathe without the worry that they will be injured. I'm sure the same can be done on a tank but I haven't been in a tanked home yet that is set that way. I was told it's because the tanks fire too often when set a lower temperatures. (???)

    I see that AquaStar is now a Bosch product. It was its own brand when we bought it. I don't know if that's made it better or worse. I can say, however, that we are very satisfied with our tankless. I have and will continue to recommend them to friends and family. Best of luck with your choice.


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