First Things First: Types of Storage Water Heaters and Costs

Heating water is the second-largest expense in our homes, according to the Department of Energy, accounting for 14% to 18% of our utility bills. That makes picking the right water heater an important decision not only for your comfort, but for keeping energy costs under control, too.

We’ll cover four types here. They all keep water toasty in an insulated storage tank until it’s used. And all, except for point-of-use, are whole-house systems:

  • Standard
  • High-efficiency
  • Solar
  • Point-of-use

FYI: A fifth type, tankless water heaters, heats cold water on demand only as you need it. That makes them more efficient than standard tank models generally, but they’re more expensive to buy and install. And tankless models can’t always handle hot water needs in high-demand homes.

Most tank water heaters are powered by gas or electricity. The type of energy available in your home will play a role in deciding which water heater you should buy.

1.  Standard storage tank water heaters

By far the most popular option, standard water heaters use a gas flame or electric heating element to heat water.

Depending on your local utility costs, gas water heaters are typically cheaper to operate than electric. They also cost more upfront than an electric. However, based on energy savings, gas heaters generally make up the difference in price in about one year.

Cost: $300 to $600 for gas; $250 to $500 for electric. Installation costs add $700 to $2,000.

Standard residential tank water heaters:

  • Have 20- to 80-gallon capacities (But, surprise! It’s not gallon capacity that’s most important. Rather it’s a measure of efficiency called first-hour rating. More on first-hour rating below.)
  • Are less expensive than other water heater types
  • Have an average lifespan of eight to 15 years

2.  High-efficiency storage tank water heaters

As the name implies, high-efficiency (HE) models are the most energy-efficient storage tank water heaters you can buy. You’ll find both gas and electric models.

Most gas-fired water heaters have an energy factor (EF) number, set by the U.S. Department of Energy, to help consumers compare the efficiency of similar appliances. The bigger the EF number, the more efficient the appliance.

Standard gas water heaters have an EF of about .50 to .60.  On the other hand:

  • HE water heaters that aren’t Energy Star-certified have an EF of about .62. 
  • Energy Star-certified HE water heaters have an EF of .67 or higher. They use 10% to 20% less energy than their standard counterparts. That can add up to $140 in savings annually, and up to $2,900 over the tank’s lifespan. 

Cost: about $620 to $1,500. Installation adds about $700 to $2,000, depending on your location.

What if you want a high-efficiency electric? Your option is a heat pump, or hybrid, water heater. They’re the only electric water heaters certified by Energy Star. They’re more expensive than gas high-efficiency.

They pull heat from the surrounding air into the water in the tank. Because of this they’re best for mild to hot climates.

They cost more than standard electric heaters, but they can pay back the difference in price in less than two years. An Energy Star model uses up to 65% less electricity than a standard electric water heater, and can save up to $3,000 over the life of the appliance.

Heat-pump water heaters:

  • Need a lot of space — roughly 1,000 cubic feet of air space around the unit. They also need to be located in a spot in your home that consistently remains between 40 degrees and 90 degrees so they can draw on warm surrounding air.
  • Have an average lifespan of eight to 15 years.

Cost: $1,100 to $3,000. Installation costs add $1,400 to $2,000.

3.  Solar water tank heaters

Solar water heaters can cut your water heating costs in half compared with a standard water heater — if you’re ready to pay a pretty penny. They have two basic components:

  • A thermal collector located on your home’s roof or in its yard
  • A storage tank and a back-up source of hot water — either a gas or electric tank water heater — to ensure a supply of hot water on cloudy and cold days

They work one of two ways:

Direct systems heat water in tubes inside the collector, then send the water to a storage tank for later use. Because the water circulation system runs outside the home, direct solar water systems aren’t recommended for climates where freezing temperatures are likely.

Closed or indirect systems send sun-heated antifreeze fluid from the collector through a closed circulation loop to your water heater tank. Inside the tank, the solar-heated fluid moves through coils and warms the surrounding water before returning to the collector.

Cost: about $8,000 to $10,000 for equipment and install in regions that experience freezing; costs are half that in areas where freeze protection for equipment is not needed.

It can take up to 30 years (longer than their projected lifespan) before their energy savings pay back the upfront costs. Local rebates and tax credits can reduce their cost.

Solar water heaters:

  • Are best suited for mild to hot climates because energy savings can be reduced or diminished on cold and cloudy days
  • Have an average lifespan of 20 years
  • Work most efficiently when the collector is located close to the tank

4.  Point-of-use water heaters

These augment your home’s whole-house water heater by providing hot water for a specific application, like a kitchen faucet.  They reduce the amount of water wasted waiting for the tap to run hot.

If you have basic plumbing skills, you can DIY install a point-of-use water heater.

Most models are electric and come in various gallon capacities: 2.5, 6, 10, 15, 20, and 30. The 20- and 30-gallon capacities are recommended for small, detached structures and home additions that don’t require a whole-house water heater.

Cost: about $200 for 2.5-gallon heater to $400 for a 30-gallon heater.

Although a point-of-use water heater can reduce water waste, you’ll be adding another power-consuming appliance to your home that will boost your utility costs.

FYI: Energy Star doesn’t certify point-of-use water heaters.

What’s More Important than Gallons? First-Hour Rating

Homeowners often buy water heaters based on capacity. Although an 80-gallon water heater will typically meet the daily hot water needs of a three- or four-person household, not every heater with an 80-gallon tank cranks out the same amount of hot water per hour.

What you really need to know is a water heater’s first-hour rating (FHR). The FHR tells you how much hot water the unit will reliably deliver in a set amount of time. Does your family of four use 40 gallons of hot water while getting ready during the same hour in the morning? An 80-gallon water heater with an FHR of 30 gallons won’t cut it.

A water heater retailer or professional installer can help you decide what FHR is right for you. Or, check out this FHR worksheet from the Department of Energy.

Features and Extras You Should Have

Brass valves: Tanks have a valve at the base that allow for easy draining during routine maintenance (which you should do at least once per year). A durable brass valve will last longer than plastic.

Glass-lined tank: It’s a heavy-duty porcelain glass layer inside the water tank that combats the corroding effects of water storage.

Digital displays: They add function by allowing users to easily monitor water heating and set custom settings. The data you collect can help modify hot water usage behavior to trim energy costs.

Long warranties: Warranties span three to 12 years. Tank water heaters with longer warranties tend to be better quality. They also have a bigger heating element that combats mineral scale buildup at the bottom of the tank. Buildup can shorten a tank’s lifespan.

Related: How to Reduce Your Water Heater’s Energy Use