The king of the water-heater market is the conventional storage water heater — the big, white cylinder filling up a faux closet. But in terms of energy efficiency, the tankless water heater, which is basically the size of a couple shoeboxes, has gained ground in popularity and far out-performs storage water heaters in monthly utility savings.
Choosing which one is right for you depends on your commitment to efficiency, openness to trying something new and your feelings on paying more now or later. Both types are available in a wide variety of sizes and styles at local home-improvement stores, including gas and electric models.
Storage water heaters, traditionally the most popular and least expensive option for homeowners, hold a standing reservoir of continuously heated water. When hot water is used, it's released from the top of the tank, then new cold water enters the bottom and is heated. If choosing this type, and saving energy is a factor, select a high-efficiency storage water heater with an Energy Star rating. High-efficiency models offer better insulation and heat traps and more efficient burners.
In contrast, a tankless water heater is just that — a heater without a tank. Because there is no heated reservoir, the tankless heater — also called an "on-demand" heater — is not continuously working and burning energy. When water is needed, it kicks into action and heats just the water you need, avoiding what's called "standby heat loss."
Another difference between the two — and it's a big difference for some people — is that storage water heaters run out of hot water. Tankless water heaters provide continuous hot water indefinitely.
"That makes quite a difference on those cold winter mornings when you're the last one in the shower," says Jeremy Holmes, who replaced his storage water heater with a tankless model two years ago. "Now if we want to, we can run the shower, the dishwasher and the washing machine all at the same time and not notice any dip in hot water."
Tankless water heaters will run a few hundred dollars more than high-efficiency storage water heaters, and installation can tack on even more, as a qualified installer will be required. Long-term factors need to be considered, however. Tankless water heaters will last at least 20 years compared with 10 to 15 for a storage water heater, and utility bills will be less during that time period. According to Energy Star, a high-efficiency storage water heater reduces water-heating bills by around 7 percent while a tankless system can cut costs by 30 percent, or $100 a year for a typical family.
The U.S. Department of Energy estimates these systems are 24 to 34 percent more energy efficient than conventional storage tank water heaters for homes using 41 gallons of hot water daily. And by using less energy, you'll reap another benefit by being environmentally conscious.
"The tankless water heater has helped a lot financially," says Holmes. "I've noticed that our gas bills have been anywhere from 10 to 15 percent lower, in general. It also made sense to us from an environmental point of view. By using less energy, gas and water, we are doing a tiny part in lessening our carbon footprint ... By choosing a tankless water heater in my own home, I am trying to practice what I preach on a personal level, but it has also made good financial sense."
To add incentive for homeowners to conserve energy, both high-efficiency storage-tank water heaters and tankless water heaters are eligible for considerable state and federal tax rebates. Avista also offers a federal tax credit for tankless water heaters.