How to Choose a Water Heater

Choosing a Hot Water Heater

Heating water is the second largest single user of energy in the home. While we all enjoy a soothing hot shower, rising energy costs—along with their adverse environmental impact—make it a good time to take a closer look at the various options now available.

Hot water heaters for sale in store

Types of Water Heaters

Storage Tank

  • Storage Tank: The most common hot water system used in homes. Water is kept constantly heated in the storage tank by electricity, natural gas, oil, or propane. Hot water is drawn out of the top of the tank when a faucet is turned on and cold water flows in the bottom to replace it.
  • Tankless: Also known as on demand water heaters. Water is heated by electricity or gas when the water flows through it without the need for a tank.
  • Solar: Water is circulated from the tank through a solar collector where it is heated by the sun. If the water in the tank is not hot enough, a conventional water heater is used to bring it up to the desired temperature.
  • Heat Pump: Heat pumps use electricity to move heat from one place to another. Heat pumps can be used for water heating alone or in combination with your heating and air conditioning system.

Factors in Choosing a Water Heater

So which type of water heater is right for your home? There are several factors to consider including the price of the system and installation, the cost and availability of energy sources, the energy factor (EF) rating of the water heater, and whether the system meets new water heater regulations.

EF ratings were established by the U.S. Department of Energy to compare the energy efficiency of various products. The EF scale for water heaters runs from a low of 0.5 for gas storage tank heaters to 2.0 for electric heat pump models. The higher the EF, the more efficient the water heater. The EF number takes into account:

  • Recovery Efficiency: How efficiently the heat is applied to the water.
  • Standby Loss: The percentage of heat loss per hour of the stored water.
  • Cycling Loss: The loss of heat as the water circulates through the unit.

On April 16, 2015, new water heater efficiency regulations went into effect under the National Appliance Energy Conservation Act (NAECA). All new water heaters must meet new, higher efficiency requirements. The benefit is that any new water heater will be more energy-efficient, saving you money.

Water Heater Energy Cost Calculator

Most water heaters run on either electricity, natural gas, or propane. Since energy prices and EF ratings can vary widely, fill in the values in the calculator below to compare energy costs in your area.

While the actual amount spent will depend on how much hot water you use, the calculator will give a comparison between the various energy sources available. Preset values in the calculator represent average EF rating for tank type water heaters and energy prices in the U.S. for 2015.

Natural Gas
Energy Factor:
Price (per Therm/CCF):
Yearly Cost:
Energy Factor:
Price (per gallon):
Yearly Cost:
Energy Factor:
Price (per kilowatt hour):
Yearly Cost:

Pros and Cons of Different Types of Hot Water Heaters

Here are some of the advantages and disadvantages of the most common types of water heaters:

Storage Hot Water Heaters:

  • Inexpensive and widely available in a variety of sizes.
  • Waste 10%-15% of energy through radiant heat loss.
  • Can run out of hot water during extended use.
  • Life expectancy 10-15 years.
  • Tank size is increasing to meet new NAECA standards, so may not fit all homes.
  • Average EF rating 0.67.
  • Cost $200-$400 plus installation.

Tankless Hot Water Heaters:

  • Take up little space and can be mounted inside or on an outside wall.
  • Meets NAECA standards without increase in size or installation costs.
  • Little or no standby energy loss.
  • Use 20% to 30% less energy than comparable storage tank models.
  • Hot water flow rate is limited by the size of the unit.
  • Can be expensive and costly to install.
  • Life expectancy 20 or more years
  • Average EF rating 0.75.
  • Whole house tankless systems cost from $600-$1000 or more plus installation.

Solar Hot Water Heaters:

  • Low to no energy cost.
  • Savings can pay for the unit in 8-12 years.
  • Requires the collector to be in full sun throughout the year.
  • Expensive and costly to install.
  • Usually use a conventional water heater for backup.
  • Life expectancy 20 or more years.
  • Do-it-yourself kits are available for $2,000. Professionally installed systems run $5,000-$7,000.

Heat Pump Hot Water Heaters:

  • Low operating costs.
  • Can only be installed in locations that stay between 40°-90° F (4°-32° C).
  • Do not operate efficiently in a cold space.
  • Can install an air-source heat pump that combines heating, cooling, and water heating; or a stand alone heat pump just for heating water.
  • Can be two to three times more energy efficient than electric water heaters.
  • Higher initial cost than storage water heaters.
  • Colder climates using a heat pump water heater may add to heating and cooling loads.
  • Systems cost between $1,400 to $2,000 including installation.

Tankless Hot Water Heaters

Available in electric, natural gas, and propane models, tankless water heaters are considered more energy efficient than storage tanks but cost substantially more to buy and install.

Tankless hot water heater mounted outside on brick wall of home.Gas tankless water heaters often require a larger gas line and modifications to the vent pipe while large tankless electric models may draw more current than the house is designed to handle.

Small single use electric units are less expensive and can be mounted under a sink. They come in handy if you have a half bath or kitchen sink located away from the main hot water heater.

Be sure and check the recommended flow rate on tankless water heaters to see if it is enough to meet your needs.

While they won’t run out of hot water like traditional storage tanks, multiple users can exceed the flow rate and cause the water temperature to drop.

Solar Hot Water Heaters

The collector on a solar water heater needs to be located where it will receive full sunlight throughout the day. For maximum efficiency it should face south and be tilted at an angle equal to the latitude.

Solar hot water heater mounted on roof of house.Solar water heaters will work at a lower slant or when facing southeast or southwest, though not as effectively.

Solar hot water heaters use either natural circulation or a pump to move water between the collector and storage tank.

Some systems circulate the water from the storage tank through the collector while others use a heat exchanger in the tank to keep the fluid in the collector separate from the water in the tank.

Though expensive to buy and install, solar water heaters are eligible for up to a $2,000 federal tax credit through 2008.

Heat Pump Hot Water Heaters

Heat pump water heaters use electricity to move heat from one place to another, which is why they are so efficient. A stand alone, air-source heat pump water heater pulls heat from the surrounding air and uses it to heat the water.

Systems are available as a stand-alone unit, with a tank and back-up heating elements, or you can retrofit an existing electric storage tank heater.

Heat pump hot water heater.Heat pumps do not work well in cold climates and are best in moderate temperature zones that range between 40° and 90° F (4° to 32° C).

They also require at least 1,000 cubic feet of space around the heater to work properly.

Heat pump systems are two to three times more energy efficient than standard storage tank models and offer a low operating cost. However, they still produce CO2 emissions and can be costly to install.

It’s recommended that homeowners considering a heat pump water heater know the considerations and requirements before purchasing.

How Water Heater Energy Efficiency Payback

To find out how long it would take an energy efficient system to earn back its added expense, divide the additional cost of the energy efficient system by the yearly savings in energy. The answer is the number of years it would take the energy efficient system to pay for itself.

$ added cost ÷ $ saved in energy a year = years to payback


  1. Solar water heating paybacks are more in the range of 3 to 6 years with the 30% federal income tax credit factored in. Starting in 2008 Louisiana is offering a 50% income tax credit for solar water heater costs on top of the federal tax credit (80% total).

  2. Lee,
    Thanks for your input. While the tax credit for solar is mentioned in the article, it wasn’t included in the payback calculations since not everyone will qualify if they don’t owe enough in taxes to take advantage of the credit.

  3. i am glad you , at lest started to open the door about heat pump hot water heaters ,
    i do distribute a product called the Nyletherm-1 ,here in Canada , but made in Maine U.S.A. by Nyle Special Products .
    i would like to add , that my research states that a 40 gallon tank water tank uses 12.8 amps of power , and a 60 gallon tank uses 16.0 amps of power ,
    now with a nyletherm-1 ,domestic hot water heat pump that uses only 4.7 amps of power when used with the same two tanks discribed above .
    thats 2/3 savings per/year on the 40 gallon,and 3/4 savings on the 60 gallon .
    15 year warrenty and 3-4 year pay back , and it dehumidifies 1 quart / hour as it runs .
    about 4 hrs for a 60 gallon , it also makes A/C about 6000btu’s worth or a temp drop of 1degree in a 15×20 space nominal even in winter , as most systems are installed near or in furnace rooms taking advantage of waste residual heat from that type of equipment. thank you very much and if you send me your questions at my web site , and your return email i will do my best to answer.

  4. So many tank-type water heaters do not have drain valves in them today for some reason… and yet, all of the DIY sites tell you at some point to access your drain valve to help drain the tank and do routine service. Arg! How aggravating! AND most water heater sites do not mention that today’s water heaters may not have a drain. Is this a conspiracy to make us have to buy a whole new water heater rather than perform simple routine maintenance?

  5. I have a 40 gallon water heater that shuts off when it reaches the desired temperature. It runs on propane. When it is heating the water in the tank, for some reason my stove flame is very low. When the water heater shuts off, the stove flame goes back to normal. Is this caused by the water heater? By replacing the water heater, will the stove function normally?

    • Ray,
      Since a gas hot water heater uses a lot of gas when it’s running, it sounds like to me that either the water heater shares an undersized gas line with your stove or the line running to your stove isn’t large enough to provide enough gas when the water heater is running.

  6. How much gas will a 40 gallon tank use to maintain water temp with very little water used during a month period. Trying to decide how long to get investment back if we replace current 40 gallon with a “on demand” system. (reply to: Thanks in advance for any assistance.

    • Hi Brian,
      The amount of gas a water heater would use when not in use would depend on a number of factors including the energy efficiency of the particular model of water heater, how well the tank is insulated, and how high the thermostat on the water heater is set.

  7. Will a single tankless water heater handle the needs of a sink and shower in the bathroom? I am remodeling a building I own into a one bedroom rental. I installed radiant heat in the floor and use a oil fired hot water heater to heat it. Through my research I have learned domestic water has to be separated from water for heating. I am considering installing 2 electric tankless water heaters. One for the kitchen and one for the bathroom. Since I live in Maine the temperature rise of the water would be the maximum. Any thoughts, comments would be appreciated. Electric rates .07 cents per KW. Propane $2.40/gal., Kerosene $3.40/gal.

    • Hi Michael,
      Whether a tankless water heater would be able to handle a bathroom or if you would need one or two tankless water heaters to handle your home would depend on the size and type of the tankless unit, as well as the size and hot water usage in your home. Gas fired tankless water heaters are available in large enough output capacity to handle the hot water needs for most entire homes, as well as smaller models. Electric tankless water heaters are generally not as effective or efficient as gas, but may be okay for a single bathroom or kitchen, particularly if it’s located far from the main hot water source and needs a boost. In either case you would probably need a larger gas line to fuel a gas tankless water heater or a high amp wire and breaker to handle the increased load of an electric model. Check the website listed above for different tankless models for info on the capacity and energy requirements. Good luck with your project!

  8. can you tell me what is the best electric tankless water heater equal to a 40 gallon electric water heater? Thanks

  9. what brand tankless water heater would you recommend for a house with three baths, dishwasher, wash machine and is in central minnesota? thank you. bill

  10. My Rheem is 7 yrs old. In 2013 I had a valve replaced for $150 and prior to that another service call. My plumber will be out 6/9 to diagnose the “leak”. If the tank cannt be repaired (that is, if the symptom is not related to pipes, gaskets, pressure relief valve, condensation, I supposed I will need a new tank. I am 66 yrs old and on a fixed/limited income. There are only 2 adults in the house. Is there a tank you can recommend that wont cost me the $1000 (total including installation)? Sincerely, B Besuner

  11. Brief and accurate article on water heaters but I have to object that the average energy factor for tankless water heaters is about 0.90

    • Hi Toasty,
      The EF listed in the water heater energy usage calculator is for tank type, not tankless water heaters and can be changed to whatever the EF is for the water heater you are interested in.

  12. Right now I have a 12 year old propane water heater in the basement and it is vented to the chimney in the basement. I want to put a wood stove in the basement and I need the chimney for the vent. I am afraid that if I get another propane water heater vented to the outside with a power vent to free up the chimney that the power vent will not be reliable and I need electricity to run it. So if the power goes off, it makes no difference that I have a propane water heater. I have heard that on demand water heaters are not reliable. I don’t know if they run on propane and if they need a power vent. It looks like its either have a wood stove or a conventional propane hot water heater. Your thoughts?

  13. Say I decide to get an electric hot water heater, how much more does it cost. One guy living in a farm house. I like to take very long hot showers after being out in the winter working on the farm in freezing weather. So I am looking at a big one, very big. A big electric hot water heater. I guess I would want the longer warranty. Do they ship them to Home Depot and then I pick it up in my truck?

  14. I need to replace my vented propane water heater. I am trying to decide whether to get another vented propane heater or switch to electric. propane is $1.79 per gallon and electricity is $.12. happy for any thoughts

  15. How do you use the FHR (First Hour Recovery) number on the Energy Star label to determine how many showers you can take? From what I understand, the FHR says how many gallons of “hot water” you can get in an hour, i.e., water that’s 115F or more. So, if you have an FHR of 60, starting at 140F and running at 3 gpm, you could (in theory) take 3 consecutive twenty-minute showers an hour. Is this correct? Energy Star refers to 10 CFR § 430 as the test standard.

  16. Question: What is the “average” additional cost to run an 80 gallon natural gas water heater…..rather than the same make/model but only a smaller size like a 40 gallon?

    In other words… the additional cost for a LARGER NATURAL GAS water heater that much?

  17. There are a lot of factors to consider when choosing what type of water heater to use, especially since it accounts as one of the greatest users of energy in the home.Thanks for posting the energy cost calculator. I am definitely going to calculate costs when I buy my water heater.
    I have recently learned a lot about using solar power. I haven’t decided if I will purchase a solar powered heater, but does where you live influence the efficiency of a solar powered device? I am thinking people who live in Alaska would probably not benefit from solar power since they experience darkness for more than a quarter of the year… So, would people who live in warmer regions benefit more from this appliance?

  18. I currently have oil to heat my water, and it stores the water in a 50gal storage tank, I never run out of hot water thank goodness…but with the price of oil it is costly to heat the water… I want to get away from wasting oil to heat my water and was looking to use electricity.

    What would be the best way to go here… I was contemplating combining an on demand electric water heater and/or an electric heated 80 gal storage tank..

    forget about cost of the products, I don’t care… I just want hot water to be available and I want the most efficient way to heat this water…

    natural gas is not an option as I don’t have a gas line to my home…

    so my choice is either be at the mercy of the oil company and fluctuating rates 2.70 gal or the electric companies where I know I will pay between 9-12cents per KW….

    from what I have read electricity units have become extremely efficient and I hate the double hit I get in the winter from oil burning to heat the house and water… I just find myself refueling the oil tank (200+gals) every 3 weeks with oil.

    so tell me what do I need electrically to heat my water??

    My demands are I want hot water all the time, I never want to be in the middle of a shower and all of a sudden it gets cold…as I have 3 girls who never get out of the shower and I don’t want them using all…lol…
    so my demand for warm water will be increasing as my girls (8 & 13) are growing into their teens…

    Solar is not an option either as I don’t get enough sun…

    – joe

  19. What should be the average time it takes to reheat water in the storage tank type water heater—using electricity to reheat the water –50 gallon capacity– after drawing water to do dishes or a short shower (approximate time for showering about 2 min., temp for the hot water is set at 115). Thanks

  20. Which type of hot water heaters among all is standardize and recommended to all for domestic purposes regarding to initial cost and cost involved with the installation.

  21. my old oil hot water heater is on its last leg. no gas, solar is out as for the trees. just about to up grade my electric- now 100 amp. looking at a direct electric or an electric tank. old system is in the unheated area. have two showers when need by my grandchildren, here about a week a year but i am by myself . also looking at the resale value of the house for anything i need to do here on long island, ny thanks

  22. I live in Clearwater, FL and need a new hot water heater. The one I will be replacing is an 80 gallon electric located in our garage. I have found a plumber who still has one of the old style waters heaters which would cost about $1,200. The new hybrid one would cost us about $2,600. Which would you advise that we install?

  23. Thank you for explaining these different types of water heaters! I’m looking into getting a tankless water heater because of the energy efficiency. However, I have a large family that uses a lot of hot water. Do you think this would work well in my situation?

  24. I am replacing my water heater, a 50 gallon electric heater. I want to replace with an electric tankless water heater. What size or brand do you recommend? We have one bathroom (shower, sink), a kitchen sink, and a washing machine. I am installing it myself. Any tips that I should know?

  25. lot of good information; BUT I WANTED TO KNOW, what tank less electric water heater provides hot water equal to a (40) forty gallon hot water tank?
    I guess I must look ells where!

  26. Thanks for bringing to my attention that storage tanks are the most common water heater systems used in residential applications. My husband and I are going to be building our first house, and we need to make some decisions about the systems within the home. The next one we’re going to tackle is water heating. We have a pretty typical family, so I don’t think we really need anything out of the ordinary or uncommon. We’ll definitely look into having a storage tank heater installed.

  27. Thank you for all this fantastic information about choosing a hot water system. We’ll definitely look at the recovery efficiency. Since we have a large house, this would be important to us.

  28. Had NO idea that EF ratings are required by the U.S. Department of Energy to ensure the energy rating is properly represented. My husband and I want to get a higher-capacity water heater because it’s been running out near the end of my showers every morning for about a week now. The info you shared here will be helpful when we start talking to a plumbing contractor about what water heater we should have installed!!!

  29. Thanks for helping me choose a water heater! My uncle gave us one of his older properties and my mom has been thinking of purchasing a water heater for our new home. I find it interesting to learn that a tankless water heater exists now! Shared.

  30. I went looking for water heaters and was overwhelmed by the options. Thanks for putting this on your site – it helped me figure out which one to go with. Keep up the good work, by the way.


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