How Much Money will a Tankless Water Heater Save Me?

Recently one of my closest friends asked me if he should replace his water heater with a tankless water heater. People either love or they hate tankless water heaters but in the end the decision to go tankless is either about savings or comfort and it depends entirely on the size of your pocket book.

Tankless water heaters are more expensive but also are more efficient because you are not storing a large volume of water in your basement. But are they really worth it? Make sure before you choose you understand all the specifics.

Why you Might Want Tankless

Tankless is better and saves you money on your water heating bill because you are not storing hot water in your basement. The idea is that instead of storing a 50 gallon tank of water in your basement tankless generates your hot water on demand as you need it. Hence the name, Tankless.

This in theory will save you money because you are not storing hot water for the few hours in the morning and evening that you are going to use it. It is also a more compact solution that can take up less space depending on the installation.

Lastly a tankless water heater depending on how it is designed and installed can provide you with endless hot water. The tank in my basement is only 50gallons so if I fill up my soaker tub I will empty my water heater which is fine so long as my wife is not having a shower in the other room at the same time. If she does we will definitely run out of hot water. Tankless would not have this problem.

The tankless system can produce upwards of 9 gallons per minute of hot water for as long as you need it without any waiting.

Why You Might Not Want Tankless

With all of the tankless perks it also has some draw backs the first of which is the need for annual maintenance if your water quality is not the greatest. If you have hard water it will build up on the heat exchanger and will impact the performance of the system and its efficiency and can potentially damage it prematurely causing failure.

This is why many professionals will tell you that you need annual maintenance on a tankless water heater to flush the heat exchanger. 

On top of this the other huge draw back for me is Tankless Water Heaters are expensive! Expensive is not a bad thing so long as you know up front that you can easily pay double for tankless hot water versus the traditional tank storage. Tankless is only expensive depending on your position in life. If you are buying a $5 coffee every single morning on your way to work then its a safe bet you can probably afford to do go tankless.  For that matter if you skipped your $5 Espresso Romano in the morning it will easily pay for the difference it costs to do tankless vs traditional water heating. 

The other thing to keep in mind is that Tankless is not ‘intant’. You may need to run the water for a few extra seconds to get the hot water you need. Some consumers and contractors also complain of what is known as the ‘sandwiching’ effect where you get hot water, and cold water sandwiched making showers a bit uncomfortable.

How Much Does Tankless Actually Save Me?

Consumer Reports notes that the average cost for a tank style Water heater is $300 to $480 vs a Tankless water heater which is $800 to $1,150. A traditional tank water heater can be installed for $300 where as a tankless is upwards of $1,200 because of all the extra components involved in installing it. So when we add that up we get:

  • Traditional Water Heater total install cost $600 ( using the lower of the two projected costs)
  • Tankless Water Heater total install cost $2,000 ( again using the lower projected costs )

So what is the payback on Tankless at double the price? Consumer reports says that a tankless wil save you on average $80 per year. I went to one of the manufacturer’s websites and it told me I will save $80.45 a year based off my postal code.

So the payback for paying an extra $1,400 to heat your water? 17 years!

One of the reasons that tankless isnt the big cash saver that people think it will be is because of how it produces the hot water. Your tank style hot water heater uses on average 50,000 BTU’s to heat your water where as the tankless uses 199,000 BTU’s on average to heat the water ‘on demand’. You are using 4 times the energy to heat your hot water which eats into the potential savings over a traditional water heater.

Tankless is without question superior in the right applications and more efficient. It will also save you money when installed properly and maintained properly. At the end of the day the reason I wont be putting a tankless in my own house or suggesting it to my friend is because the up front cost is not something I can justify or frankly afford.

My first focus on any upgrades that I do in my home that have miniml upfront expense and maximized long term savings. I do not need endless hot water and I cant afford a tankless water heater so I will save $80 a year by simply skipping a few trips to Starbucks.


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