Water heating is the second largest expense in the average American home, In fact, the average household spends 14%-18% of their utility bill on water heating - that equates to approximately $400-$600 each year.  So investing in a more energy efficient water heater is an important step for saving energy costs.  While the Energy Saver water heating section, has a lot of great resources for saving money on water heating, there are a lot of choices.  So to help make things easier, here are all the basics in one place.

A storage water heater holds a reservoir of hot water and operates by releasing hot water from the top of the tank when you turn on the hot water tap. Cold water fills the bottom of the tank after use.

Lasts 10-15 years.

Lower purchase cost.

Allows for simultaneous, multiples uses of hot water.

Standby heat loss can occur, wasting energy even when a hot water tap isn't running.

Tankless (a.k.a. Demand)
Tankless water heaters, also known as demand-type or instantaneous water heaters, provide hot water only as it is needed, eliminating standby heat loss.

Lasts about 20 years.

8%-34% more efficient than storage water heaters.

Could save $100 or more annually with an ENERGY STAR qualified tankless water heater.

Have lower operating costs.

Higher initial cost.

Hot water output limited to about 2-5 gallons per minute; multiple heaters may be needed if hot water demand is high.


Solar water heating systems include storage tanks and solar collectors. There are two types of solar water heating systems: active, which have circulating pumps and controls, and passive, which don't. (There's more on the types of solar water heaters here.)

Lasts about 20 years.

50% more efficient than gas/electric water heaters.

Can be used in any climate, and the fuel—sunshine—is free and a renewable resource.

Higher initial cost.

May require a backup system for cloudy days or high-demand times.

Tankless Coil
A tankless coil water heater provides hot water on demand without a tank. When a hot water faucet is turned on, water is heated as it flows through a heating coil or heat exchanger installed in a main furnace or boiler.

Lasts about 10 years.

No standby heat loss.

Efficient during colder months while heating system is used regularly.

Lower installation and maintenance costs.

Inefficient for many homes, especially in warmer climates.

An indirect water heater uses the main furnace or boiler to heat a fluid that's circulated through a heat exchanger in the storage tank.

Lasts about 10 years.

Energy stored by the water tank allows the furnace to turn off and on less often, which saves energy.

Used with a high-efficiency boiler and well-insulated tank, indirect systems can be less expensive, particularly if the heat source boiler is set to "cold start."

Requires a storage tank.

Can be inefficient for many homes, especially in warmer climates.

Heat Pump
Heat pump water heaters use electricity to move heat from one place to another instead of generating heat directly. To move the heat, heat pumps work like a refrigerator in reverse.

Lasts about 10-15 years.

Can be 2 to 3 times more energy efficient than conventional electric resistance water heaters.

ENERGY STAR qualified models can save almost $300 annually on electric bills.

Can only be installed in locations that remain in the 40º–90ºF range year-round.

Require at least 1,000 cubic feet of air space around the water heater.

Increase the load on space conditioning appliances during heating months.

To reduce your water heating bills you can also try some of these Energy Saver tips:

  • Install low-flow showerheads. They cost about $10-$20 and achieve a water savings of 25%-60%.
  • Use less hot water. It seems obvious, but there are so many ways you can cut hot water use, like only washing your hands and clothes with cold water.
  • Turn down your water heater's thermostat. Turning the temperature down to 120ºF can save anywhere from $36-$61 annually. We even have a DIY project to help!
  • Purchase ENERGY STAR appliances. Using ENERGY STAR dishwashers and clothes washers reduces your water use per load while providing the same level of cleaning.
  • Insulate your water heater tank and pipes. Together insulating your tank (if it's old) and pipes can save from $28-$57 annually. We have DIY projects for this too.

For more information about water heaters, check out the Energy Saver 101 infographic: Everything you need to know about water heaters. And remember, it's no fun to be stuck with freezing cold showers every morning—trust me, I know. Proper maintenance is key, and water heaters typically last about 10 to 15 years, so if you're getting close to that with your current water heater, start researching now!