Can I save money with a tankless water heater?

Finding ways to reduce the expense of heating water can result in significant savings. Would a tankless water heater help?
Energy efficiency has become a hot topic — both for those wishing to "go green" to help the environment as well as for those concerned with decreasing their energy costs. When you consider the average homeowner spends 12 percent to 30 percent of their energy bill to heat water for showers, washing dishes, doing laundry, and washing their hands, finding ways to reduce this expense can result in significant savings.

Tankless water heaters have long been popular in Europe, and we are now seeing a surge in popularity in the U.S. Before we dive into the potential cost savings, we need to understand exactly what a tankless water heater is.

Most of us are familiar with a hot water heater tank — the big, cylindrical appliance in the garage, basement, or closet. These tanks store hot water and are constantly working to keep it warm until we need it. To maintain the water temperature, the heater cycles on and off continuously. In contrast, a tankless water heater does not store any water and only heats water when it is needed. Because the water is heated on demand, energy isn't wasted keeping a large tank of water hot and ready to go, which results in increased energy efficiency and lower operating costs.

See this explainer on how tankless water heaters work.

The upfront cost of purchasing and installing tankless water heaters is more than traditional tank systems. But, like any good investment, there's a payback over the long term. Plus, tankless water heaters can last much longer than their more traditional counterparts, which means you'll be able to enjoy years of saving on your energy bill once you've recouped the cost of your initial investment.

Upfront costs

Tankless water heaters can cost two to three times more than traditional tank water heaters to purchase and install. For example, the installation of the Rinnai RC80i — a tankless water heater equivalent to a traditional 50 gallon tank version — will cost between $2,500 and $3,500. That's at least $1,500 more than the tank water heater. But, the higher installation cost can be offset by as much as $1,000 with incentives and tax credits often offered by federal, state and local governments, and utilities. Currently, there's a federal tax credit of up to $500 available for qualifying units put into use from 1/1/11 - 12/31/11. Go to for more information on eligibility and how to receive the tax credit.

So ... will I save money?

A tankless water heater is 30-50 percent less expensive to operate each year, or appoximately $100 to $300. So, using the example of a 50 -gallon equivalent tankless water heater from earlier, you can see it's possible to recoup the extra upfront costs of a tankless water heater in 3 to 5 years when the tax credits are applied. And since tankless water heaters boast a 20+ year life span, compared to 10 - 15 years for a tank water heater, they really can turn out to be a good financial investment in the long run. In deciding whether owning a tankless water heater will literally pay off in your case, you also will want to consider how much hot water your family uses and, of course, how long you plan to be in your home.

A professional plumber can help you calculate the total cost to purchase, install, and maintain a tankless water heater system for your home.

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