The basics

We’ve all been there: You’re in the middle of a hot shower when a rush of cold water hits out of nowhere. Not ideal. While the occasional lukewarm tap is an annoyance, constant problems with varying water temps or full-on hot water outages could mean that your water heater is seriously on the fritz. Choosing the right type for your budget, space, and allocation needs is crucial to your comfort.

Let’s look at each of those categories more closely through the lens of the two main types of water heaters: storage tank water heaters and tankless water heaters.

Tank water heater in basement
Tank water heaters

Picture a water heater, and it’s most likely a tank water heater. Also called a conventional or traditional water heater, tank water heaters have been around in one form or another since the 19th century, so the majority of homeowners are more familiar with this option.

A tank model water heater heats water, then stores that hot water for use when needed. In other words, hot water is kept at a desired temperature at all times, ready for use when your taps turn on. But once you go through the water in the tank, you must wait for the heater to replenish its supply before additional hot water is available.

The tank itself comes in different sizes, typically holding anywhere from 30 to 50 gallons. Storing 50 gallons of liquid requires quite a bit of space in your home, so these water heaters are commonly installed in utility closets, garages, and basements.

Tankless water heaters

Tankless water heaters are a newer technology introduced as an energy-efficient alternative. As you’ve likely guessed from their name, they don’t use a tank to hold heated water. Tankless systems, also called on-demand heaters, use a heat exchanger to rapidly bring water up to temperature as it passes through the unit. Heating water only when it’s needed eliminates the standby energy losses you get with a storage tank.

Because there’s no need to store gallons of water, tankless heaters have a much smaller footprint, which means they require less space for installation. They’re typically housed on a wall in a utility room or on the outside of the home.

Tankless water heater on side of house

Initial Cost

A conventional tank water heater runs homeowners around $1,000 for equipment and installation, while a tankless water heater costs a few thousand dollars for equipment alone. These prices vary depending on the specifications of the model you choose, but tankless is almost always going to have the larger price tag — as much as three to five times more.

Additionally, switching to tankless from a storage tank water heater can be a (pricey) challenge in itself. Your plumber may need to complete a retrofit: relocating piping, installing gas lines if you switch between fuel types, and more.

Summary: For equipment and installation, a tankless water heater will cost you more upfront than a tank model. Tankless, being a more sophisticated system, may require more costly maintenance down the line, too.

Energy Savings

While tankless water heaters cost more upfront, homeowners choose this technology for the energy savings over time.

Here’s the payback breakdown:

  • Heating water is the average U.S. home’s second highest utility cost (after heating and cooling the house itself).
  • Tankless water heaters were found to be 22 percent more energy efficient on average than the gas tank models by Consumer Reports. Other sources report up to 34 percent in energy savings.
  • The Department of Energy translates that efficiency to take around $100 per year off your utility bill.

That’s not to say that storage tank water heaters cannot be energy efficient. A high-efficiency tank water heater — thanks to better insulation and more efficient components — uses up to 8 percent less energy to do its job versus lower-efficiency options.

Summary: A tankless water heater saves you a significant amount of energy (gas or electricity) by only heating water when you want it. There are high-efficiency tank options, but the energy they exert to keep hot water stored all the time is going to be more, categorically, than that used by tankless models.

Equipment Life

While factors such as maintenance and water hardness do affect the service life of water-heating equipment, a tank water heater has an average useful service life of 10 to 15 years. Tankless water heaters last twice as long, between 20 and 30 years.

With a tank water heater, there are also some risks when it comes to equipment failure. Because a large volume of water is held in the storage tank, there’s potential for substantial flooding and damage in your home. When tank water heaters fail, they often fail spectacularly. With a tankless water heater, you’re more protected against water damage in the event of equipment failure.

Summary: While the sticker shock of a tankless system may dissuade some, you’ll only have to replace it every 20-30 years, versus a tank system needing to be replaced every 10-15 years. Long term, you’re looking at paying for two tanked systems in the same time period you’ll need just one tankless.

Space Restrictions

Storage tanks can be 5+ feet tall and 2+ feet wide. Tank-model water heaters require much more space for installation versus tankless models. If your water heater is in the basement, you might not mind the space a tank takes.

Tankless water heaters are a top choice for installation where space is restricted. Because they’re smaller and may be installed on the wall, they’re easy to fit in tight spaces and smaller homes.

Summary: Tankless water heaters are the better option for those with smaller spaces. Think a 50-gallon tank of hot water versus a wall-mounted box the size of a carry-on suitcase.

Water Availability

Perhaps most important for many homeowners is the availability of on-demand hot water. There’s no clear winner here, as both tank and tankless water heaters have their own unique allocation challenges.

Tank water heaters draw from a reserve of hot water. Water within the storage tank is kept at a desired temperature at all times, ready for use when your taps turn on. That means all the stored hot water is available for use at once.

It also means, though, that what’s in your tank is the amount you have to use — when it runs out, you’ll need to wait for it to refill. This problem can be curbed with the purchase of a larger model, but with that comes higher costs and space requirements.

As for your other option, there’s no risk of “running out” of hot water with tankless water heaters. Instead, tankless heaters can be what we call output challenged. They produce two to three gallons of hot water per minute. So when there are multiple hot water demands at the same time — say, running the dishwasher and washing machine at the same time that someone is taking a shower — the system won’t be able to heat at the rate the water is being released. In households that rarely have more than one hot water appliance simultaneously in use, a tankless water heater does just fine.

Summary: Both types of water heater could leave you without hot water in moments of high demand — whether in the form of your tank emptying or your tankless system being unable to heat quickly enough. In households that run more than one hot water appliance at a time, tank water heaters are typically recommended for comfort.

Final notes

If your bank account can manage the higher initial cost of a tankless water heater, you’ll save more money over time by choosing tankless. It uses less energy, and it’s forecasted to last twice as long. But if you’re working with a limited budget or living in a household that demands a lot of hot water at once, a storage tank water heater might make more sense for you.