Determining the Payback Period for a Typical, More Expensive Tankless Water Heater

Tankless water heaters are like the smartphones of the water heater industry.  It has new technology, sleek designs, and each model seems to be smaller than its predecessor.  And it also have other benefits, such as an endless supply of hot water and significant savings on your energy bill.  But are these savings enough to justify their costs?

Traditional water heaters work by filling up a tank with hot water, then heating the water in that tank.  The water stays in the tank until you use it, like when you take a shower or wash your hands. A big problem with traditional water heaters is that heat is lost over time while the water sits in the tank.  This is called standby energy loss and it’s especially prevalent if your tank is not properly insulated. If this is the case, then your water heater will heat and reheat the same supply of water over and over again until it is used.

With tankless water heaters, cold water is heated instantaneously as it passes through a pipe with heating elements and is then sent to the faucet for its use.  Because there is no tank, there is no standby energy lost.

According to, homes that use 41 gallons or less of hot water per day can save an average of 30 percent on their water heating by switching to a tankless water heater.  Homes that use more than 86 gallons per day will likely save only 10 percent on their water heating. For the average home, a tankless water heater will save about $100 per year, compared to a traditional water heater.

The savings are nice, but the average tankless water heater costs significantly more than traditional water heaters.  Plus, installation costs can be very higher, as much as $5,000, if your home is not compatible with the tankless water heater.  For example, if you used to have an electric traditional water heater and are switching to a gas powered tankless water heater, a licensed electrician will need to be called to help set up the water heater.  Incorporating the cost of the device, the installation cost, and the energy savings, the payback period for a typical tankless water heater is about 20 years. Since tankless water heaters last about 20 years, you really won’t be saving any money compared to purchasing a traditional water heater.

Tankless water heaters have longer warranties than traditional water heaters, and you don’t have to worry that your basement will be flooded by an accident caused the by the water heater.  But if you are looking at buying a new water heater and your decision comes down only to value, you would be better off purchasing a traditional water heater.


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