Tankless vs. tank water heater: which saves more?
Short answer: Tankless heaters avoid a tank's standby heat loss. DOE-based figures put them 24% to 34% more efficient for homes using 41 gallons of hot water a day or less, and 8% to 14% at about 86 gallons. In electric homes, an ENERGY STAR heat pump water heater, using under half a standard tank's energy, usually saves more.
Why a tankless water heater uses less energy
A tank water heater keeps 20 to 80 gallons of water hot around the clock. Heat leaks out through the tank walls even when no one uses hot water. This is called standby loss. A tankless (on-demand) heater only fires when a tap opens, so it has no standby loss.
How much that saves depends on how much hot water you use. The less you use, the bigger the share of a tank’s energy that goes to standby loss.
| Household hot water use | Tankless efficiency gain over a tank |
|---|---|
| 41 gallons a day or less | 24% to 34% |
| About 86 gallons a day | 8% to 14% |
| A small tankless unit at each hot water outlet | 27% to 50% |
These figures are U.S. Department of Energy estimates, as summarized by the Government of Bermuda’s water heater guide. They describe energy saved, not dollars. Your dollar savings depend on your fuel, your rates and how much hot water you use. A heavily insulated tank also cuts standby loss, which narrows the gap.
How much hot water can a tankless heater deliver?
The main trade-off is flow. Typical tankless units deliver 2 to 5 gallons per minute (gpm). Run a shower and a dishwasher at once and a single unit may not keep up. A tank gives you its full stored volume at any flow rate until it runs out.
How to size a tankless heater by flow rate
Add up the gpm of the fixtures you will run at the same time. Then check the temperature rise: your target hot water temperature minus your incoming water temperature. Incoming water is usually colder in winter, so plan for the larger winter rise.
The heat needed is simple physics:
BTU per hour = gpm × 8.33 lb per gallon × 60 minutes × temperature rise (°F)
Divide by 3,412 to get kilowatts.
| Flow needed | Heat at 45 °F rise | Heat at 70 °F rise |
|---|---|---|
| 1.5 gpm (one low-flow shower) | 33,700 BTU/h (9.9 kW) | 52,500 BTU/h (15.4 kW) |
| 2.5 gpm (one 2.5 gpm shower) | 56,200 BTU/h (16.5 kW) | 87,500 BTU/h (25.6 kW) |
| 3.5 gpm (shower plus a sink) | 78,700 BTU/h (23.1 kW) | 122,500 BTU/h (35.9 kW) |
| 5.0 gpm (two showers) | 112,500 BTU/h (33.0 kW) | 174,900 BTU/h (51.3 kW) |
These numbers show why whole-house electric tankless units are a hard fit. A 25 to 50 kW heater needs a very large electrical service. Have an electrician check your panel before you buy one. Gas tankless units reach high outputs more easily but need proper venting.
Is a heat pump water heater better than tankless?
For many electric homes, yes. A heat pump water heater keeps a tank but moves heat from the surrounding air into the water instead of making heat with resistance elements. ENERGY STAR says certified models use less than half the energy of a standard electric tank. Its fact sheet estimates a family of four saves about $330 a year, based on a 12-cent electricity rate. At today’s higher rates, the dollar figure would be higher.
They have limits:
- ENERGY STAR advises installing them in spaces that stay between 40 and 90 °F all year.
- They need about 1,000 cubic feet of air space around the unit.
- They cool the room they sit in.
- In cold weather or with very cold inlet water, they may switch to standard electric mode for a while, which uses more energy.
Which one should you choose?
| Your situation | Likely best fit |
|---|---|
| Gas home, small household, modest use | Gas tankless |
| Gas home, many people showering at once | Gas tank, or tankless sized for peak flow |
| Electric home with a basement or garage that stays above 40 °F | Heat pump water heater |
| Electric home, small panel | Electric tank or heat pump; whole-house electric tankless is hard to power |
| One far-away bathroom or sink | Small point-of-use tankless unit |
Tankless units also tend to last longer. The DOE-based guide cited above gives more than 20 years for most tankless units versus 10 to 15 years for tanks. Prices and installation costs vary widely, so get quotes that include venting, gas line and electrical work.
Safety notes
Gas water heaters, tank or tankless, must be vented outdoors, and gas tankless units often need a larger gas line; have a licensed installer handle gas and venting work. A carbon monoxide alarm near sleeping areas is essential in any home with fuel-burning appliances. Large electric units need dedicated circuits sized by a licensed electrician.
Whatever you choose, the setpoint matters too. See our guide to the right water heater temperature setting. To see what your showers cost, try the shower cost calculator.
Quick answers
Do tankless water heaters really save money? They save energy by removing standby loss. The DOE-based estimate is 24% to 34% for low-use homes and 8% to 14% for heavy-use homes. Whether that pays back the higher install cost depends on your quotes and rates.
What size tankless water heater do I need? Add the gpm of fixtures used at once, then size for your winter temperature rise. One 2.5 gpm shower at a 70 °F rise needs about 87,500 BTU per hour.
Is a heat pump water heater cheaper to run than tankless? For electric homes, usually. ENERGY STAR says heat pump models use less than half the energy of a standard electric tank.
How long does a tankless water heater last? Most last more than 20 years, compared with 10 to 15 years for a tank, according to the DOE-based guide.