Tankless Water Heaters: Are They Worth the Money?

Tankless hot water heaterAre you planning to replace your old hot water heater, and debating whether to get a standard or tankless device?

Its no secret that a tankless water heater can cost 30-50% more than a storage model, especially when you factor in the significantly higher installation cost required for tankless devices.

At the same time, tankless heater are touted as being more convenient, efficient, energy-saving, and many other advantages that seem very appealing.

Lets take a closer look at whether a tankless water heater with all its pros is really worth the extra cost.

The Cost of Tankless vs Storage Hot Water Heater

To start off, lets compare how much you would spend on a quality tankless device vs. a storage model.

Storage style hot water heaters start as low as $300, average at about $700-900, and cost as much as $3,000+ for high-end models.

Tankless (on-demand) heaters start at about $800, and go as high as $3,000 for high-end models.

Clearly, at the low-end, storage water heaters cost less, but mid-range and high-end devices cost about the same as tankless heaters.

Installation Costs

In addition to the price you will pay for the device, you have to account for difference in the installation cost.

It turns out that the difference is HUGE: you can have a storage water heater installed for about $350-450. However, installing a tankless heater will set you back at least $1,200-2,500, because there is complex plumbing and electric work that needs to be done. However, if your house needs to be completely retrofitted to put in a tankless water heater you are looking at installation costs of around $4,000-5,000.

This means that even if you pay the same price for a tankless hot water heater as you would for a storage model, you will still spend at least an additional $1,000 on installation.

Energy Savings from a Tankless Hot Water Heater

Did you know that about 30% of an average home’s energy budget is spent on heating water? This prompts many homeowners to look for ways to cut costs, and one option is to install a more energy efficient water heater.

Compared to tank-style gas heaters, on-demand gas heaters are about 22% more energy efficient. If your household only used 40 gallons of water or less per day, the tankless device could be as much as 24-34% more energy efficient than a traditional model.

How much does this put back in your pocket?

Research shows that 22% higher energy efficiency of a tankless water heater is equal to about $70-80 savings per year.

If you consider the cost difference of $1,000 calculated above, saving at the rate of $80/year would mean that you would recoup the cost of the tankless heater only in 12.5 years.

In reality, research shows that you would recoup this cost in about 22 years, because the difference in prices for these heaters is usually more than $1,000 and you will spend more over the years to maintain a tankless vs. storage model. Keep in mind that life expectancy for most tankless devices is about 20 years+.

From this you can gather than a tankless water heater will most likely come to the end of its service life, BEFORE you will recoup its high initial cost in energy savings.

You should keep in mind that most gas (not electric) tankless water heaters qualify for a state tax rebate (around $300). Check what the requirements and rebate rates are in your location.

Electric Tankless Models

When you compare the savings from traditional vs. tankless electric models, they are even less than from gas powered devices. On average, according to the US Department of Energy, electric tankless heaters save only $44/year more than tank-style models.

Thinking Beyond Financials

Water from the shower

Clearly, if you think purely in terms of dollar amount, it does not make sound financial sense to get a tankless hot water heater (especially if you are on a budget).

However, many people still buy them and love them for a variety of different reasons:

Longevity: a tankless water heater lasts 20+ years, while a traditional device lasts only 8-12

Longer Warranty Period: most tankless models come with a 15 year warranty, while standard devices come with a 6 year warranty.

Compact Design: tankless hot water heaters offer a compact, space saving design. This allows for greater flexibility of installation in different areas of the home. In fact, it can even be installed outside. By comparison, storage models are a lot bigger, and require a designated large space in the house (typically the basement).

Endless, On-demand Water: having hot water when you want and as much as you want is one of the biggest selling points of tankless water heaters. However, you should carefully consider your water usage and household size, before you assume that you will always get this level of water supply.

If you have a very large household, and/or often use the shower and other appliances that require hot water at the same time, your tankless water heater may not be up to the task. Depending on how much water you need, you may consider installing two tankless heaters to meet the high demand, but this will obviously cost a pretty penny.

Your Opinion: Is a Tankless Water Heater Worth the Money?

If you own a tankless water heater, tells whether you think its worth the money you spent on it?
How much did you pay for the device and installation?
What do you like about it?

4 thoughts on “Tankless Water Heaters: Are They Worth the Money?

  1. Julie barclay

    I want to buy a water heater, I am so confused whether to buy electric tankless water heater or gas tankless water heater. can you please suggest me which will be good to buy?

  2. katherine bone

    I keep hearing a hissing noise from our gas water heater, what should I do have water all over the garage???????? Please help me

    1. Leo Post author

      Hissing noise means overheating and pressure release valve letting some steam out. You need a professional look at it.

    2. Leo Post author

      Katherine – hissing noise indicates high pressure, and relief valve opening up.

      Reduce temperature setting to slightly above warm. Definitely call a plumber.


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