When Grayson Bell moved into a new home in Raleigh, North Carolina, last year, he planned to replace his 27-year-old water heater.
The founder of personal finance blog DebtRoundup.com, Bell thought he could save money by installing a tankless water heater. But after consulting more than a dozen plumbers, he found that with an initial cost of $4,500, it would take more than 18 years for the savings from lower energy costs to equal his initial expenses. That was enough to convince him to buy a traditional 50-gallon electric tank.
"I was dead set on getting a tankless because I heard about how much money you can save," Bell says, but he found that any energy savings would be eaten up by installation costs. He ended up paying $1,200 for a traditional water heater, which included moving the unit, a new stand and a new extended drain. Bell determined a tankless electric installation would save only about $15 a month. "It doesn't really save you that much," he says.
Most people don't do quite that much research, especially if it's an emergency, but it's good to know your options ahead of time and have an idea of how much each will cost in the short term and long term. Gas water heaters last about 10 years and electric about 15 years, on average, so if your water heater is nearing that age, you might want to investigate options now.
There are two major types of water heaters: traditional storage tanks that hold 20 to 80 gallons of water and tankless heaters, which heat water as it passes through the unit. Each type comes with variations that can be used with gas, propane or electricity. You can also buy solar water heaters, with an electric or gas backup.
Most people buy the water heater from the plumber who installs it, though you can buy your own from a hardware store. Discuss options with your plumber and tell him or her about your needs: more hot water, energy savings or other considerations, plus ask for recommendations.
The most economical option is typically to replace an existing water heater with the same kind and same fuel source, and for most homeowners that will be a storage water heater. Changing fuel source or type can require expensive retrofitting.
"If your current water heater is meeting your water needs, your best bet is to replace it with the same thing," says Rick Muscoplat, a contributing editor for FamilyHandyman.com.
Even if you replace like with like, you may still find yourself facing added costs for permits, upgrading to meet current codes or accommodating heaters that meet new Environmental Protection Agency standards for energy efficiency that went into effect in April.
"It can almost double the price of what you think it's going to call for," says Mary Kennedy Thompson, a licensed plumber and COO of The Dwyer Group, the parent company of 11 home service franchise brands.
The changes for smaller storage water heaters are minimal, while tankless water heaters already met the new EPA standards. Storage water heaters of 55 gallons or more will have to use new technologies that make them significantly more energy efficient but also larger. Heat-pump technology, which draws heat from the surrounding air to increase efficiency, has been added to electric water heaters, and new gas water heaters use condensing technology to keep warm air from escaping. While these options are more expensive, they save additional energy.
When Thompson recently replaced her water heater in Waco, Texas, she opted to stay with a traditional electric storage heater. "I did not put a tankless in because of the cost," she says. "Clearly a tankless water heater is going to be the more expensive route."
Thompson and Muscoplat say that replacing a storage water heater with a tankless heater only makes sense if your existing water heater isn't meeting your family's needs and, even then, a larger storage heater may be the better option. "Where I think tankless water heaters make sense for retrofitting is if you have a shortage of space and run out of hot water a lot," Thompson says.
Before committing to any water heater, you should know what will be required to install it. A natural gas tankless heater may require a larger gas line, new flue, new water lines and the addition of an electrical line. Installing an electric tankless heater is likely to require additional electrical work because the tankless heaters draw so much current. There are tankless heaters that use propane, but Muscoplat says they are generally not practical for residential use because a large propane tank would be required.
All those extras can bring the cost of adding a tankless water heater to an existing home to $8,000 or more. Plus, he says, tankless heaters should be flushed out twice a year with a descaling agent, at a cost of about $175 each time, and the sensors and electronics make them more expensive to repair.
"Are they saving money? Absolutely not," Muscoplat says. "A tankless water heat in a retrofit costs a fortune to install. Never buy a tankless water heater thinking that you're going to save money."
On the other hand, tankless water heaters are more energy efficient than their storage tank counterparts and they provide almost endless hot water, so they can be a good choice for new construction or if you’re doing a major renovation project.
Here are three things to look for when choosing a water heater.
Size. Consider not only the number of gallons the tank holds, but also the "first hour rating," which is the number of gallons the heater can supply per hour. You can find that number on the EnergyGuide label. Remember that a 50-gallon tank will only provide about 35 gallons of water because as you use the hot water it is replaced by cold. If the average eight-minute shower uses 17.2 gallons, that means you can get two showers from a 50-gallon tank with a first hour rating of 35.
Retrofitting. Most municipalities require a permit to install a water heater, plus some newer water heaters take up slightly more space. When choosing a water heater, consider how much you'll need to spend to make it fit or to comply with current building codes. Some newer gas heaters also require the installation of an electric line.
New technologies. The newer types of tank water heaters – heat pump for electric and condensing for gas – cost more but use less energy. Do the math to calculate whether they're the right choice for you. Interview multiple plumbers and get at least three bids for any type of water heater you're considering.
Corrected on Oct. 15, 2015: A previous version of this story misstated Mary Kennedy Thompson's title.