Compare Tankless vs Tank Water Heater Costs

What is a Tankless Water Heater?

Tankless water heaters heat only the water you need, when you need it, eliminating the need for a storage tank. They are smaller and more energy efficient than traditional storage tank water heaters but more expensive. And there are limits to how much hot water can be produced per minute.

Tankless water heaters can be powered by natural gas or electricity. When the hot water is turned on, cold water passes through the unit and is heated instantly. The rate of hot water produced ranges from about 2 to 5 gallons per minute, with gas-powered models producing hot water at a higher rate than most electric models.

In large households, sometimes 5 gallons per minute is not enough. Five gallons per minute also falls short if you’re running the washing machine and dishwasher at once, or if you’re showering while the dishwasher is running. This problem can be solved by installing two tankless water heaters in the home, or you can purchase separate, smaller tankless water heaters for appliances that use a lot of hot water.

How Much Does a Tankless Water Heater Cost?

Tankless water heaters are more expensive than their traditional counterparts. The average residential model usually costs anywhere from $800 to $1,500. Installation is also more expensive because it is complex. Budget about about $1,000 to $1,500 for that work, which brings the total cost to about $1,800 to $3,000.

For the average family, the energy savings from switching to tankless amount to about $70 to $120 per year. Let’s say you spend $2,000 to purchase and install a tankless water heater. If your annual savings are $100, it would take 20 years - the approximate lifespan of a tankless water heater - to recoup the cost in energy savings.

Tankless Water Heaters Pros

• Compact - Tankless water heaters are small and compact. They fit into tight spaces such as underneath the sink or in a closet. Often, they can be mounted to the wall.
• Energy efficient - According to ConsumerReports, tankless water heaters, on average, are 22 percent more energy efficient than traditional water heaters.
• No waiting for hot water - Tankless hot water heaters instantly heat the water you need. You’re not limited to the capacity of a holding tank.
• Long lifespan - Tankless water heaters last about 20 years, compared to an average of about 10 to 15 with conventional water heaters.

Tankless Water Heaters Cons

• Expensive - Tankless water heaters are significantly more expensive upfront than traditional tank water heaters. They’re also more expensive to install, repair and maintain. In many cases, it takes about 20 years or more before you’ll recoup the cost in energy savings.
• Limited output - Despite the fact that they heat water on demand, tankless water heaters can only produce so much hot water per minute. For large families, two tankless water heaters may be needed to keep up with demand.
• Difficult to install - Tankless water heaters, particularly those that are gas powered, have complex ventilation requirements. Often, existing gas lines and venting ducts are not adequate. Installation can be complex and very pricey.
• Require electricity - Most tankless water heaters have electrical controls, meaning you won’t have hot water in the event of a power outage.

What Is a Storage Tank Water Heater?

Conventional water heaters have large tanks that heat and store water until you turn on the hot tap. They hold anywhere from 20 to 80 gallons, but a capacity of 40 to 50 gallons is enough for the average home.

With conventional water heaters, the water in the tank is constantly heated - whether you’re using it or not. This translates to what’s known as standby heat loss, which makes storage tank water heaters less efficient than tankless varieties.

Storage tank heaters can be powered with natural gas, electricity, propane or fuel oil. A layer of insulation between the inner tank and outer shell helps keep the water at your desired temperature. The U.S. Department of Energy recommends looking for a storage water heater with a thermal resistance (R-value) of R-12 to R-25.

How Much Does a Storage Tank Water Heater Cost?

Most conventional water heaters cost $300 to $600 - less than half the cost of tankless varieties. Installation is also cheaper, usually about $300 to $500, bringing the total cost in the range of $600 to $1,100. However, high-efficiency tank water heaters can be pricey, running up to $1,500 uninstalled. The energy savings with these models mirrors that of tankless water heaters.

Storage Tank Water Heaters Pros

• Price - Storage tank water heaters require a much smaller upfront investment. They’re also cheaper to install, repair and maintain.
• Ease of installation - Tank water heaters are fairly quick and easy to install. The process takes about two or three hours, compared to a full day with tankless models.
• May not require electricity - Many gas- and oil-powered tank water heaters do not require electricity to operate. This means you will still have hot water if the power goes out.

Storage Tank Water Heaters Cons

• Size - Storage tank water heaters are big and bulky. They take up a lot of space in the home. They’re also heavy and difficult to move.
• Can run out of hot water - Once the tank is empty, you’ll have to wait for a new tank of water to heat up. That is, unless you like cold showers.
• Shorter lifespan - Most storage tank water heaters only last 10 to 15 years, compared to about 20 years with tankless water heaters.

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