Tankless electric water heater vs tank water heater: Which one is the best?

How to install a tankless electric water heater

There has been a lot of discussion about the energy savings that people can expect when they install tankless or tankless electric water heaters instead of traditional storage tank models.

As is often the case in the world of plumbers, contractors and DIYers, nobody agrees on which type of system is more efficient – or whether there’s really any difference at all between them.

Which one to choose?

Traditional storage tanks hold 50, 80, or even 100 gallons (230, 380, or even 450 liters) of heated water ready for your use 24 hours a day. The average US household draws more than 70 gallons (265 liters) per person per day for showers, sinks, and other daily uses. Around 10 to 15 gallons (38-57 liters) gets wasted while waiting for hot water to reach you in another part of the house.

Since there’s no storage tank taking up space (and adding weight to your monthly energy bills), many people believe that tankless water heaters are more efficient than conventional storage-tank models – although how much they’re saving depends on several variables:

· The climate where you live and whether or not your local utility company offers any kind of rebate or incentive program

· The size of your household

· The type of system you have installed

· Whether or not an energy-saving showerhead has been installed on every shower in the house

· How often you run your dishwasher and clothes washer, along with other appliances that use hot water

The average household’s annual electric bill will rise by around $150 if a tankless water heater replaces an aging storage tank model. But, depending on how much home heating & cooling equipment costs to operate during the winter & summer months, even this could be money well spent.

According to some sources, however, residents of warmer climates can expect to save between 40% and 70% on their energy bills – which means it’ll take less than four years for the tankless system to pay for itself.

Of course, if your local utility offers rebates or other incentives, the savings are likely to be much higher – since you won’t have to come up with as much money upfront to cover the costs of installation.

The best advice is not to take anyone’s word for it & decide how much you’re willing to invest based on accurate information from multiple sources.

What are the benefits?

· Much more energy-efficient than traditional storage-tank models. If you’re replacing an old tank model with a new high-efficiency water heater that meets government standards, you might cut down your annual fuel bill by around 35%. If your home heating system costs $600-$900 per month to operate, this could be a great way to cut the expense.

· Water heaters which use natural gas or propane offer more energy savings than those that run on electricity. According to some sources, switching from an electric water heater to a gas-fired system will reduce your annual fuel bill by up to 40% every year – although every gallon of gas you burn means 7 pounds of CO2 emissions in the atmosphere.

· Installation is a snap with any type of tankless system – so long as you have access from above and below when connecting pipes & power lines. Most manufacturers include detailed installation instructions with their units, but most DIY types can handle the job in less than half a day – which doesn’t cost anything except time.

· If your hot water stops working when the power goes out, you won’t have to worry about losing any stored-up heat – which means no chilly showers in the morning or evening when the temperature starts to drop. This is especially important during an unseasonably long cold snap or when snow & ice coat your roof and insulate your attic & walls – since a sudden drop in current could mean a quick freeze-up of your plumbing system.

What are the drawbacks?

· Depending on how much space you have available under your sink for a storage tank, it might be impossible to install a traditional 50-gall model with an insulated jacket around it without causing serious damage to your cabinets or walls.

· It’s impossible to install a gas water heater in an area where the pipes run through unheated spaces, such as crawl spaces under floors & porches. If the pipes are outside your house, it could be expensive to insulate them so that gas doesn’t escape – which means extra costs if you decide to switch over to a propane/natural gas system.

The only alternative is an electric one, but this too can pose problems – especially during long power outages when you don’t have access to any stored energy for hot water use.

· While tankless heaters are much more efficient than storage tank models, they’re not exactly cheap. Exactly how expensive they depend on the type of heating unit you choose, but our research suggests that the average price of a combined gas/electric model ranges between $700 & $1,700 – with most homeowners opting for electric tankless systems because the installation costs are lower.

· People who have very large homes or use massive amounts of hot water every day can expect to pay even more money just to get started. For example, some sources suggest that the initial investment for owners of big houses could be upwards of $2,000, while others say it might take over $4,000 to put in enough piping & wiring to make larger models work properly.

When is it worth it?

According to some experts, if you pay over $18,000 a year for heating fuel then you’d save at least that much by installing tankless water heaters – especially if you opt for the more expensive models.

We’re not sure where they got those numbers, but we can tell you that if your annual energy bill is as high as $5,500 at current rates, it’s possible to recoup your money in less than five years with a very efficient storage-tank model or three years with an electric-powered tankless heater.     

Homes with lower gas bills might not see such great results so quickly because of the price differential between propane and natural gas – but even homeowners who use only $1000 worth of energy each year can break even within seven years if they install tankless water heaters.

Do you want the best of both worlds?

Tankless models are great for bathrooms & kitchens, but most homeowners opt for traditional storage tank heaters when they need heat in other parts of their house. If that sounds like you, then why not get one of each?

 Even though they’re installed separately, it’s easy to hook up tanks and tankless systems together by running small lines underneath your home with proper insulation around them. When you turn on an electric or gas water heater in another part of your house, you’ll also get hot water for your sink & shower.

What if you live in a house that’s too small to make a tankless setup practical?

As we mentioned above, homes with lower heating bills might not recoup their initial investment as quickly. In those cases, it might be better just to buy storage tanks and install an efficient system instead of buying tankless models – especially if your current heating unit is old or barely meets minimum efficiency requirements set by the federal government.

What do the experts say?

According to Don Blankenship, author of The Tankless Water Heater Guide, most homeowners “can save between $30 – 50 per month” with tankless models simply because they use so much less energy than traditional systems.

Blankenship also points out that tankless heaters are “more effective than traditional storage tanks for heating water to 140° +/-, which is the federal standard.”

However, he disagrees with the $18,000 per year estimate – suggesting that saving that much requires having extremely high gas bills during all four seasons. Even if you’re one of those people, he suggests it might be better just to buy more efficient storage tank models instead.

What about other factors?

Aside from cost considerations, there are lots of other things you should know about tankless water heaters before deciding whether or not they make sense for your home.

For example, they can cause dehumidifier problems if you’re not careful with the way you set up ductwork. They may take longer to heat water than traditional systems, which can be a problem because most people won’t wait for hot water if they could easily grab it from another source.

There’s also the small issue of increased construction costs – some contractors say your average tankless heater will add at least $1,000 to the cost of any new home you build, which is much more than you’ll pay for even the cheapest models on store shelves.

There are also smaller issues that homeowners should be aware of before they decide whether or not their next water heater should have one or two tanks: The noise from traditional storage tank units is likely to be louder than it would be with tankless models.


If you want to heat water, buy a tank. If you want to heat your house, buy storage tanks AND tankless heaters.

This is not an exhaustive list of things that can go wrong with tankless systems, but it’s enough information for now.

Even though they’re more efficient than storage-tank models when it comes to heating water, tankless systems are still less energy-efficient than traditional heating units for your whole house.

FAQs Section

What does a typical tankless water heater cost?

On average, you should expect to pay around $1,500 for a very small tankless model and as much as $2,000-$3,000 for the larger (6 gallons) models.

Is the installation expensive?

On average, you’ll spend around $500 to have an electric tankless model installed and around $1,000 for a gas tankless heater.

Do I need to install them myself?

If you’re comfortable with basic home improvement skills (and repairing outdated plumbing) then most people can install their own tankless water heater. However, you should always hire a local plumber to take care of the actual hookup process if you’re uncomfortable doing it yourself.

How many BTUs does my house need?

Unfortunately, there’s no easy way to figure this out – each home has its own unique needs when it comes to heating the water. The only way to find out if you need more BTUs is to contact a local plumber and ask them what size heater would be best for your home.


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