Water heating takes up about 18% of a home’s energy use. This makes it one of the biggest energy costs for most families. With energy bills going up, many homeowners want to find ways to lower their water heating costs while making their homes more efficient. Traditional water heaters store hot water in big tanks. But tankless water heaters work differently – they heat water right when you need it. This means no storage tank is needed. However, many homeowners wonder if tankless water heaters are really worth the money. This guide will help you understand how much energy these systems can save, what they cost, and how well they work. By the end, you’ll know if a tankless system is right for your home.
Quick Summary
- Tankless water heaters save 24-34% on energy costs, especially in homes that don’t use a lot of hot water
- While they cost more to buy and install, they save money over time with lower bills and last over 20 years
- Tankless water heaters work well for bigger homes and homes with limited space, but may not be the best choice for small households or tight budgets
What Are Tankless Water Heaters?
Tankless water heaters are also called on-demand water heaters. They heat water right as it flows through the unit. This is very different from regular storage water heaters that keep 40-50 gallons of water hot all the time. Since tankless systems only heat water when you need it, they can cut down on wasted energy.
The main difference is simple: regular water heaters heat water and store it in a tank, waiting for you to use it. Tankless units heat water only when you turn on a hot water tap. This means you’re not paying to keep water hot when nobody is using it.
How Do Tankless Water Heaters Work?
Understanding how these systems work helps you see why they can save energy. A tankless water heater doesn’t store any hot water like a regular system. Instead, it heats water only when you need it. This gives you an endless supply of hot water, but the amount you get depends on how powerful the unit is.
Here’s what happens when you turn on hot water:
Step 1: Water Starts Flowing – When you turn on a hot water tap, cold water travels through a pipe into the heater. Since there’s no storage tank, the system only turns on when it senses water flowing through it.
Step 2: Instant Heating – A powerful gas burner or electric heating coils quickly heat the water as it moves through the unit. The water reaches the right temperature almost right away.
Step 3: Continuous Hot Water – As long as you keep the tap open, the heater keeps warming the water. Unlike regular water heaters that can run out of stored hot water, this system keeps going. However, how much hot water you get depends on the unit’s size and power.
This process happens every time you need hot water, whether it’s for a shower, washing dishes, or doing laundry. Since the unit only works when water is flowing, it uses much less energy than keeping a whole tank of water hot 24/7.
Types of Tankless Water Heaters:
There are two main types of tankless water heaters, and each has its own benefits:
- Gas-powered tankless water heaters use natural gas or propane to heat water. These units can usually provide more hot water at once, making them good for bigger families. They heat water faster than electric units and work well even when you need a lot of hot water at the same time.
- Electric tankless water heaters are smaller and easier to install than gas units. However, they might not be able to keep up if you need a lot of hot water all at once. They work best for smaller homes or homes that don’t use much hot water.
Choosing between gas and electric depends on what’s available in your home, how much hot water you use, and your budget.
Energy Savings Breakdown for Tankless Water Heaters
The amount of energy you can save with a tankless water heater depends on how much hot water your family uses every day. Here’s what you can expect:
For homes using 41 gallons or less of hot water daily:
- Energy Savings: 24-34% more efficient than regular water heaters
- Why it works: Homes that don’t use much hot water benefit most from tankless systems because they don’t waste energy keeping a big tank of water hot all day
For homes using around 86 gallons of hot water daily:
- Energy Savings: 8-14% more efficient than regular water heaters
- Why less savings: Homes with medium hot water use see smaller energy savings because they might need more powerful units, which can be less efficient
For homes using more than 86 gallons of hot water daily:
- Energy Savings: Usually closer to 8% or even less, depending on whether the unit can handle the high demand well
Several things affect how much you can save with tankless water heaters:
- How much your local utility company charges for energy
- When and how you use hot water
- How hot or cold it gets where you live
- How efficient your specific unit is
- How well it was installed
Understanding these factors can help you develop better energy-saving strategies for summer and winter while maximizing your tankless water heater’s efficiency.
Energy Efficiency Comparison
Looking at tankless water heaters versus traditional ones shows some clear differences:
| Feature | Tankless Water Heater | Traditional Water Heater |
| Heating Method | Heats water only when needed | Keeps water hot all the time |
| Standby Energy Loss | None | Yes, loses heat constantly |
| Energy Factor Rating | 0.82 – 0.99 | 0.58 – 0.70 |
| Annual Energy Savings | 24-34% more efficient | Less efficient due to heat loss |
| Hot Water Supply | Endless (limited by flow rate) | Limited to what’s in the tank |
Cost of Tankless Water Heaters: What You’ll Pay
The total cost of a tankless water heater includes the price of the unit itself plus installation costs. While they cost more upfront, many homeowners find they save money in the long run.
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 | $800 – $3,000 |
The higher installation cost for tankless units happens because they often need special equipment. This might include new gas lines, upgraded electrical systems, or special venting.
Return on Investment Example
Here’s a real example of what you might expect with a tankless water heater:
| Category | Cost/Savings |
| Initial Investment | |
| Unit Cost | $2,500 |
| Installation | $1,500 |
| Total Initial Cost | $4,000 |
| Annual Figures | |
| Current 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 this example shows it takes many years to break even, remember that tankless units last much longer than regular water heaters. Also, many areas offer rebates or tax breaks for energy-efficient appliances, which can help lower the initial cost.
| 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
Flow rate is one of the most important things to understand about tankless water heaters. It tells you how much hot water the unit can provide at one time. Most tankless water heaters can provide 2-5 gallons of hot water per minute (GPM).
To choose the right system, you need to know how much hot water your family uses at busy times. For example:
- Shower: 2-3 GPM
- Washing machine: 2-3 GPM
- Dishwasher: 1-2 GPM
- Kitchen sink: 1-2 GPM
If your family might use the shower and dishwasher at the same time, you’d need a unit that can handle 3-5 GPM. This is why bigger families or homes with high hot water use need more powerful units.
Installation Requirements
Installing a tankless water heater often requires more work than replacing a regular water heater. Here’s what might be needed:
For Gas Units:
- New or upgraded gas lines to handle the higher gas flow
- Special venting to remove exhaust gases safely
- Adequate gas supply from your utility company
For Electric Units:
- Upgraded electrical system to handle the high power needs
- New electrical circuits and wiring
- Adequate electrical service from your utility company
For Both Types:
- Professional installation by a licensed plumber
- Permits from your local building department
- Water softener in areas with hard water to prevent mineral buildup
These requirements explain why installation costs can be high, especially in older homes that weren’t built with tankless systems in mind.
Long-Term Value Analysis
Lifespan Comparison
One of the biggest advantages of tankless water heaters is how long they last. Traditional tank water heaters typically work well for 10-15 years before needing replacement. In contrast, tankless systems can operate efficiently for 20-25 years with proper care and maintenance.
This longer lifespan helps make up for the higher initial cost. When you spread the cost over 20+ years instead of 10-15 years, the price per year becomes more reasonable.
Maintenance Costs
Tankless water heaters do need regular maintenance to work their best. Annual maintenance typically costs around $100 or more. This mainly involves cleaning out mineral buildup, which is called descaling.
In areas with hard water (water with lots of minerals), this maintenance becomes even more important. Without regular cleaning, minerals can build up inside the unit and make it less efficient or even damage it.
While this maintenance cost is higher than what traditional tank water heaters need, the longer lifespan usually makes it worth it.
Best Tankless Water Heater Options for Your Home
Choosing the right tankless water heater depends on your family size, whether you have gas or electric service, and how much hot water you use. Here are some top-rated models:
| 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 can handle high hot water demand better, but electric units are often easier to install.
- Flow Rate – Measured in gallons per minute (GPM), this determines how much hot water can be delivered at once.
- Efficiency Rating – Higher numbers mean the unit wastes less energy.
Who Should Get Tankless Water Heaters?
Tankless water heaters work best for certain types of homes and families:
Best Candidates for Tankless Systems:
- New construction homes where installation is easier
- Homes with high hot water usage that can take advantage of the endless supply
- Properties in moderate climates where incoming water isn’t extremely cold
- Households that care about energy efficiency and environmental impact
- Areas with high energy costs where the savings add up faster
When to Stick with Traditional Systems
- When your budget is limited and you can’t afford the higher upfront cost
- When installation would be very complicated or expensive
- When your hot water use is very low and you wouldn’t benefit much from the efficiency
- When electric rates are very high (for electric tankless units)
- When your current system combines space heating with water heating
Can Tankless Water Heaters Handle Cold Climates?
Many people worry about whether tankless water heaters work well in cold weather. The good news is they do work in cold climates! However, when the incoming water is very cold, the unit has to work harder to heat it up. This can sometimes reduce the flow rate or make the system slightly 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 when the incoming water is very cold.
- Insulate Your Pipes – Wrapping your water pipes with insulation helps keep heat from escaping, so the heater doesn’t have to work as hard. Proper home insulation is crucial for maintaining efficiency in cold weather.
- 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 during the coldest months.
In most climates, a properly sized tankless water heater will work just fine year-round. The key is choosing a unit with enough power to handle your needs even when the water coming in is at its coldest.
Environmental Impact of Tankless Water Heaters
Besides saving money on energy bills, tankless water heaters also help the environment in several ways:
- Lower Energy Use – By heating water only when needed, these systems use less total energy than traditional water heaters
- Longer Lifespan – Since they last 20+ years instead of 10-15 years, fewer units end up in landfills
- Recyclable Parts – Most components can be recycled when the unit finally needs replacement
- Less Water Waste – You get hot water faster, so less water goes down the drain while waiting for it to heat up
A typical household can reduce their carbon footprint by 1,000-1,500 pounds of CO2 every year by switching to a tankless system. Over the life of the unit, this adds up to a significant environmental benefit. This reduction complements other daily habits that transform your home’s energy efficiency.
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. So, are tankless water heaters worth the cost? In many cases, yes.
✅ They use less energy
✅ They last longer
✅ They take up less space
✅ They provide endless hot water
However, the higher upfront cost and installation complexity may not work for everyone.
Wrapping Up
Tankless water heaters represent a significant improvement over traditional storage tank systems for many homes. While the initial investment is higher, the combination of energy savings, longer lifespan, space savings, and unlimited hot water makes them attractive to many homeowners.
The key is to carefully consider your family’s hot water needs, your budget, and your home’s current setup. If you use a moderate amount of hot water, have space constraints, or are building new, a tankless system could be perfect for your home.
Before making a decision, get quotes from several licensed contractors who can assess your specific situation. They can help you understand what installation would involve and whether your home is a good candidate for a tankless water heater.
Remember that this is a long-term investment. While you might not see immediate savings on your energy bills, the benefits add up over the 20+ year lifespan of these systems. For many families, the combination of convenience, efficiency, and long-term savings makes tankless water heaters a worthwhile upgrade to their home. When combined with other energy-efficient appliances, the cumulative energy savings can be substantial.
Frequently Asked Questions About Tankless Water Heaters
Do tankless water heaters really save energy?
Yes. Tankless water heaters use 24–34% less energy than traditional ones in homes with low to moderate hot water use because they only heat water when needed.
Are tankless water heaters worth the higher upfront cost?
For many homeowners, yes. Although they cost more to buy and install, they last over 20 years and can lower energy bills, making them a smart long-term investment.
Can a tankless water heater provide enough hot water for my whole family?
It depends on the unit’s size and your hot water use. Larger gas models can handle multiple uses at once, while smaller units may struggle during peak demand.
Is a tankless water heater a good choice for cold climates?
Yes, but you’ll need a high-powered unit to handle cold incoming water. Pipe insulation and proper installation can help keep water flowing hot even in winter.