Short answer
A tankless water heater heats water only when you use it, so it avoids the standby heat loss of a storage tank. The Department of Energy says it typically costs more to buy but lasts longer. A storage tank is the most popular type. A heat pump water heater is usually more efficient still but needs the right space. The best choice depends on fuel, space, hot water use and installation limits.
If you are comparing tankless vs tank water heater options, you will meet three main choices: a conventional storage tank, a tankless (also called demand-type) heater and a heat pump water heater. Each one has a real advantage and a real catch. This guide lays them side by side using the US Department of Energy's Energy Saver pages and ENERGY STAR, and it gives no prices, because prices depend on where you live and what your home needs.
Not sure how big a tank you need? Try our water heater size calculator. If your heater is aging, see how long a water heater lasts.
The main types of water heaters
The Department of Energy's Selecting a New Water Heater page lists these types:
- Conventional storage water heaters offer a ready reservoir of hot water that is adequate for everyday use. The page notes that extra uses at once, or guests in the home, can raise the requirement.
- Tankless or demand-type water heaters heat water directly without a storage tank, and are designed to supply hot water without running out when adequately sized.
- Heat pump water heaters move heat from one place to another instead of generating heat directly.
The page also lists solar and tankless coil and indirect heaters, but most homeowners compare these three. The Department of Energy says fuel type and availability in your area may narrow your choices.
Tankless vs tank water heater: side-by-side comparison
| Question | Storage tank | Tankless | Heat pump (with tank) |
|---|---|---|---|
| How it works | Heats and holds 20 to 80 gallons in a tank, for a single-family home | Heats water as it flows through a heat exchanger, using a gas burner or an electric element | Uses electricity to move heat from the surrounding air into a storage tank |
| Standby heat loss | Yes, the tank loses heat to its surroundings | None from a tank, though a gas pilot light can waste energy | Has a storage tank, so some standby loss applies |
| Lifespan as stated | 10 to 15 years | Most have a life expectancy of more than 20 years | The Department of Energy page gives no figure |
| Efficiency as stated | The lowest-priced unit may cost the most to run over its life | 24% to 34% more efficient for homes using 41 gallons or less a day; 8% to 14% for homes using about 86 gallons a day | Two to three times more energy efficient than conventional electric resistance water heaters |
| How it is sized | First hour rating | Flow rate in gallons per minute and temperature rise | First hour rating; ENERGY STAR suggests starting with your current tank size |
| Fuel | Natural gas, propane, fuel oil or electricity | Natural gas, propane or electricity | Electricity |
| Main limit | Can run out in a long, busy hour | Output limits flow rate, typically 2 to 5 gallons per minute | Needs a suitable space; efficiency drops in a cold room |
The lifespan and efficiency figures are the Department of Energy's. Real results vary with maintenance, use and model.
Storage tank water heaters
The Department of Energy says conventional storage water heaters remain the most popular type for the home. Cold water enters at the bottom of the tank, is heated, and hot water leaves from the top when you open a tap, so the tank stays full.
The main drawback is standby heat loss: energy can be wasted even when no tap is running. The page says some models have heavily insulated tanks that cut it, and that gas and oil heaters also have venting-related losses. It also says the lowest-priced storage water heater may be the most expensive to operate over its lifetime, and that an oversized unit carries a higher purchase price and higher standby losses.
Tankless water heater pros and cons
Here is what the Department of Energy page on tankless or demand-type water heaters says, split into advantages and limits.
Advantages
- No standby energy losses from a tank, which can save money.
- A constant supply of hot water, with no waiting for a tank to refill.
- For homes that use 41 gallons or less of hot water daily, 24% to 34% more energy efficient than conventional storage tank water heaters. For homes that use a lot, around 86 gallons a day, 8% to 14%.
- A longer life: most have a life expectancy of more than 20 years, compared with 10 to 15 for storage heaters, and the page says they have easily replaceable parts that may extend life further.
Limits
- The initial cost is greater than that of a conventional storage water heater. The page says the longer life and lower operating cost could offset it.
- Output limits flow. Typically tankless heaters deliver 2 to 5 gallons per minute, and gas-fired models deliver more than electric ones.
- Even the largest gas-fired model may not keep up with several uses at once in a large household, such as a shower and a dishwasher together.
- Gas-fired units with a standing pilot light can waste energy, which can offset the savings. The page suggests looking for models with an intermittent ignition device instead.
Are tankless water heaters worth it?
It depends on your household, and the sources do not give a single answer. The Department of Energy's efficiency numbers show the biggest gain for low-use households and a smaller gain for heavy users, and its note that a tankless heater costs more up front but typically lasts longer and costs less to run says the payoff is possible, not guaranteed.
These questions help you test it for your own home:
- How much hot water does your household use in a typical day? A low-use household sits at the high end of the efficiency range.
- Do you run several hot water uses at once? Peak overlap is where a tankless heater can struggle.
- What would installation need, such as a larger gas line, new venting or an electrical upgrade? Ask for these items in writing.
Heat pump water heaters
The Department of Energy says heat pump water heaters use electricity to move heat instead of generating it directly, which makes them two to three times more energy efficient than conventional electric resistance water heaters. It says they typically have higher initial costs than conventional storage heaters but lower operating costs that can offset higher purchase and installation costs.
The catch is location and climate. Both the Department of Energy and ENERGY STAR say a heat pump water heater should go in a space that stays between 40 and 90 degrees Fahrenheit year-round, with at least 1,000 cubic feet of air space around it. They tend to cool the space they sit in and do not operate efficiently in a cold space. ENERGY STAR adds that in colder months, with lower incoming water temperatures, the unit may switch to standard electric backup heating, which uses more energy, and that installers may need time to order the model and installation may take longer than for a standard water heater. It says heat pump water heaters may need annual maintenance, including air filter changes.
For the electrical side, ENERGY STAR's heat pump water heater design guide for builders (no date shown) recommends, for new construction, a 208/240-volt circuit with 30-amp panel service. It says 240-volt models on 15-amp breakers exist for homes with limited service capacity, and that they have a lower first hour rating.
Installation: gas lines, venting and electrical capacity
Installation can decide the comparison, because the cost and difficulty depend on what your house already has. These are the points the sources raise:
- Changing fuel. The Department of Energy says that when converting from one fuel type to another, other cost considerations include adding a breaker, running a gas line to the water heater and venting it outside.
- Gas tankless units. ENERGY STAR says the installer should identify how combustion gases will be vented, whether your existing natural gas line is sufficient and, for forced ventilation models, whether electricity is available near the water heater. It also says installation may take longer than for a standard water heater. Natural Resources Canada's 2012 Water Heater Guide gives an example: a gas tankless unit may need a three-quarter inch gas supply where a standard heater uses a half inch.
- Local codes and permits. The Department of Energy says proper installation depends on fuel type, climate, local codes and safety issues, and advises a qualified plumbing and heating contractor.
The department's contractor checklist applies to every type: request cost estimates in writing, ask for references and see whether the company will obtain a local permit if necessary.
Who each type suits
These are guides drawn from the sources, not rules.
- Storage tank. Suits a household that wants the most common type, has the fuel and venting it already uses, and values a ready reservoir of hot water. Watch for standby loss, and size it by first hour rating.
- Tankless. Suits a household with modest daily hot water use, a plan to stay in the home for years and an installation that can handle the gas, venting or electrical needs. It is a poorer fit where many uses overlap and the unit cannot meet the combined flow.
- Heat pump. Suits a household with a suitable space, such as one that stays within the 40 to 90 degree range with enough air volume, a wish to cut electric water heating costs and electrical service for the unit. It is a poorer fit in a cold or cramped space.
What to ask an installer
- Which type do you recommend for my fuel, space and household, and why?
- What first hour rating, or flow rate and temperature rise, do I need?
- What changes does my house need: gas line, venting, electrical, drain, or a new location?
- Will you pull the permit?
- How long will the job take, and when can the model be ordered?
- What maintenance does the model need and how often?
- Can I have a written quote that lists the unit, labour and any extra work separately?
Compare two or three written quotes the same way. For the heater you have now, see how to flush a water heater and what to do when a water heater leaks.
Mistakes to avoid
- Buying on purchase price alone. The lowest-priced storage heater may be the most expensive to operate.
- Waiting for a failure. ENERGY STAR advises planning ahead if you can, since the installer may need time to order the right model.
What to look up where you live
- City or county building department. Ask whether a permit and inspection are required for a water heater replacement or a change of type.
- State or provincial plumbing or contractor licensing board. Confirm a plumber's licence and check for complaints.
- Your gas and electric utilities. Ask about fuel availability and any rebates. ENERGY STAR says to review eligibility rules before buying.
Note for Canadian readers: Natural Resources Canada's Water Heater Guide (revised October 2012) covers storage, tankless and heat pump heaters and the EnerGuide label. Provinces and municipalities set licensing and permit rules, and fuel and electricity costs differ from the US, so ask a licensed contractor in your province.
For plumbing company owners
Tankless vs tank water heater is a comparison your customers research before they call, often right before a replacement. A clear page and a strong local listing help them choose you. See our guides to plumber Google Business Profile and plumbing SEO, or book a call with LiveLeadsLane. LiveLeadsLane is a marketing practice for contractors, not a directory, and it does not take jobs or refer homeowners.
