Heating water accounts for about 18% of a household’s energy use, making it one of the largest energy expenses in most homes. With rising utility costs, many homeowners are looking for ways to reduce their water heating bills while improving efficiency. Unlike traditional storage water heaters, tankless models heat water on demand, eliminating the need for a storage tank. But are tankless water heaters worth it in the long run? Many homeowners wonder if such water heaters are truly worth the investment. This article goes over the energy-saving potential, costs, and overall performance of tankless water heaters to help you make an informed decision.
Key Takeaways
- Tankless water heaters save 24-34% on energy costs, especially in homes with lower water usage.
- While they cost more upfront, they save money in the long run with lower bills and last over 20 years.
- Tankless water heaters work well for larger homes and those with limited space but may not be ideal for small households or tight budgets.
What Are Tankless Water Heaters?
Tankless water heaters, also known as on-demand water heaters, heat water directly as it flows through the device. Unlike traditional storage water heaters that keep 40-50 gallons of water hot at all times, tankless systems heat water only when needed, potentially reducing energy waste.
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How Do Tankless Water Heaters Work?
A tankless water heater does not store hot water like a traditional system. Instead, it heats water only when needed, providing an endless supply—but the flow rate depends on the unit’s capacity.
Here’s how it works:
- Water Starts Flowing – Turning on a hot water tap sends cold water through a pipe into the heater. Since there’s no storage tank, the system only activates when needed.
- Instant Heating – A high-powered gas burner or electric coils rapidly heat the water as it moves through the unit, ensuring it reaches the desired temperature almost immediately.
- Continuous Hot Water – As long as the tap stays open, the heater keeps warming the water. Unlike traditional water heaters that can run out of stored hot water, this system provides a steady supply—but its output depends on the unit’s size and power.
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Types of Tankless Water Heaters:
Tankless water heaters come in two main types:
- Gas-powered tankless water heaters – Use natural gas or propane and typically provide higher flow rates.
- Electric tankless water heaters – More compact and easier to install but may struggle with high hot water demand.
Energy Savings Breakdown for Tankless Water Heaters
- For homes using 41 gallons or less of hot water daily:
- Energy Savings: 24-34% more efficient compared to traditional water heaters.
- Why: Homes with lower hot water usage benefit more from tankless systems because they don’t waste energy keeping a large amount of water hot in a tank.
- For homes using around 86 gallons of hot water daily:
- Energy Savings: 8-14% more efficient compared to traditional water heaters.
- Why: Homes with moderate hot water usage see less of an energy efficiency gain because they may need more flow rate capacity, which can result in less optimal energy savings.
- For homes using more than 86 gallons of hot water daily:
- Energy Savings: Savings could be closer to the lower end of the 8-14% range, or even less, depending on the unit’s ability to meet high demand efficiently.
At the end of the day, savings with tankless water heaters can vary based on:
- Local utility rates
- Water usage patterns
- Climate conditions
- System efficiency rating
- Installation quality
Energy Efficiency Comparison
| Feature | Tankless Water Heater | Traditional Water Heater |
| Heating Method | On-demand heating | Constant standby heating |
| Standby Energy Loss | None | Yes, significant energy loss |
| Energy Factor (EF) Rating | 0.82 – 0.99 | 0.58 – 0.70 |
| Annual Energy Savings | 24-34% more efficient | Less efficient due to standby losses |
| Hot Water Supply | Endless (limited by flow rate) | Limited to tank capacity |
Cost of Tankless Water Heaters: Initial Investment vs. Long-Term Savings
The cost of a tankless water heater depends on several factors, including the unit price, installation costs, and long-term operational expenses.
Upfront Costs:
| Cost Factor | Tankless Water Heater | Traditional Water Heater |
| Unit Price | $500 – $2,500 | $300 – $1,500 |
| Installation Costs | $1,000 – $3,500 | $500 – $1,500 |
| Total Initial Cost | $1,500 – $6,000 (Unit price + Installation costs) | $800 – $3,000 |
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Tankless Water Heater Return on Investment (ROI) Example
| Category | Cost/Savings |
| Initial Investment | |
| Unit Cost | $2,500 |
| Installation | $1,500 |
| Total Initial Cost | $4,000 |
| Annual Figures | |
| Current Annual Water Heating Cost | $500 |
| Energy Savings | 25% |
| Annual Savings Amount | $125 |
| Annual Maintenance Cost | -$100 |
| Net Annual Savings | $25 |
| Long-term Analysis | |
| Expected System Lifespan | 20 years |
| Years to Break Even | 32 years |
| Total Lifetime Savings | $2,500 |
While the tankless water heater installation cost is higher, it may qualify for rebates and tax incentives due to its energy efficiency. Many high-efficiency water heaters also meet ENERGY STAR criteria. This can make them eligible for additional savings.
| Pros of Tankless Water Heaters | Cons of Tankless Water Heaters |
| ✅ Higher Energy Efficiency – Uses 24-34% less energy for low water usage homes. | ❌ Higher Initial Cost – Expensive to purchase and install. |
| ✅ Unlimited Hot Water – No risk of running out of hot water. | ❌ Flow Rate Limitations – May struggle with multiple simultaneous hot water demands. |
| ✅ Longer Lifespan – Lasts 20+ years, compared to 10-15 years for traditional models. | ❌ Regular Maintenance Required – Requires annual descaling in areas with hard water. |
| ✅ Compact Size – Saves space by mounting on a wall. | ❌ Retrofitting Challenges – Installing a tankless system in an old home can be costly. |
| ✅ Lower Monthly Energy Bills – Reduces energy waste. |
How to Understand Flow Rate for Tankless Water Heaters
Tankless water heaters typically provide 2-5 gallons of hot water per minute (GPM). Knowing how much hot water your household needs at peak times helps you choose the right system:
Installation Requirements
Installing a tankless system often requires:
- New gas lines (for gas units)
- Upgraded electrical system (for electric units)
- Special venting
- Water softener in hard water areas
- Professional installation
Long-Term Value Analysis
Lifespan Comparison
Traditional tank water heaters typically last 10-15 years, while tankless systems can operate efficiently for 20-25 years with proper maintenance. This longer lifespan helps offset the higher initial cost.
Maintenance Costs
Annual maintenance costs can be around or more than $100 for tankless systems, primarily for descaling to prevent mineral buildup. While this is higher than traditional tank maintenance, the extended lifespan typically justifies the additional expense.
Best Tankless Water Heater for Home Use
Choosing the best tankless water heater depends on your household size, fuel type, and hot water demand. Here are some of the top-rated models to consider:
| Brand & Model | Type | Flow Rate | Efficiency Rating |
| Rinnai RU199iN | Gas | 11 GPM | 0.96 UEF |
| EcoSmart ECO 27 | Electric | 6.5 GPM | 0.99 UEF |
| Stiebel Eltron Tempra 24 Plus | Electric | 4.5 GPM | 0.99 UEF |
| Noritz NRC66DVNG | Gas | 6.5 GPM | 0.89 UEF |
Key Considerations:
- Gas vs. Electric – Gas models handle high hot water demand better, but electric units are easier to install.
- Flow Rate – Measured in gallons per minute (GPM), determining how much hot water can be delivered simultaneously.
Best Candidates for Tankless Systems
Tankless water heaters work best for:
- New construction homes
- Homes with high hot water usage
- Properties in moderate climates
- Households prioritizing energy efficiency
- Locations with high energy costs
When to Stick with Traditional Systems
Traditional tank water heaters might be better when:
- Budget is limited
- Installation complications exist
- Hot water demand is very low
- Electric rates are high (for electric tankless)
- Space heating is combined with water heating
Can Tankless Water Heaters Handle Cold Climates?
One common concern about tankless water heaters is whether they work in cold climates. The good news is they do! However, colder incoming water temperatures mean they must work harder to heat water. This can sometimes lower the flow rate or make the system a little less efficient.
Tips to Keep Hot Water Flowing in Cold Weather:
- Pick a High-Power Model – A gas-powered unit with a high BTU rating will heat water faster, even in freezing temperatures.
- Insulate Your Pipes – Wrapping your water pipes with insulation helps keep heat from escaping, so the heater doesn’t have to work as hard.
- Consider a Hybrid System – If winters get extremely cold where you live, a hybrid water heater (which combines tank and tankless features) can provide extra reliability.
Environmental Impact
Tankless water heaters reduce carbon emissions through:
- Lower energy consumption
- Longer lifespan (less frequent replacement)
- Recyclable components
- Reduced water waste
A typical household can reduce their carbon footprint by 1,000-1,500 pounds of CO2 annually by switching to a tankless system.
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Are Tankless Water Heaters Worth It?
For many homeowners, tankless water heaters are a great choice because they save energy, last longer, and lower your monthly bills. While they cost more upfront, the long-term savings and the benefit of never running out of hot water make them a smart investment.
Who Should Consider a Tankless Water Heater?
✅ Homeowners who want to save on water heating costs.
✅ Families that need a constant supply of hot water.
✅ Homes with limited space for a bulky traditional water heater.
However, if you are on a tight budget or don’t use much hot water, a high-efficiency storage water heater could be a better, more affordable option.
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