Is A Tankless Water Heater Worth It? Does It Save Money? (Cost Calculations)

Nowadays, everybody is installing tankless water heaters. That’s because they are absolutely worth it and they save you money. Right? To figure out if a tankless water heater is worth it, we made a few calculations on how much money does a tankless water heater save.

According to Statista’s 2016 and 2017 study, the sales of tankless water heaters increased 14% in 1 year alone (2016 vs 2017). In 2017, $451 million worth of these energy-efficient heaters were sold in 2017. That’s a big number and the sales are increasing even more in recent years.

To adequately determine if tankless water heaters are actually worth it, we need to look at 3 key aspects:

  1. Upfront cost of a tankless water heater (compared to standard water heater cost).
  2. Running cost of a tankless water heater (compared to standard water heater running cost).
  3. Lifespan on tankless vs. tank water heaters.

Here’s the quick summary:

Of course, tankless hot water heaters are worth it. They have a higher upfront cost, but a lower running cost and last twice as long as the conventional tank water heaters. You will find the full summary with calculated savings costs at the end of the article (we’ll calculate them using best rule-of-thumb estimations).

This is how you can determine financial viability for you choosing a tankless water heater:

Upfront Cost + Running Cost + 20-Year Lifespan

We used all these 3 factors to estimate if you save money by installing a gas or electric tankless water heater. What is even more important, we estimate how much money do you save on hot water bills over the 20-year lifespan.

We will do this in a structured way by looking at the expenses of both gas and electric tankless water heaters vs gas and electric tank water heaters. Let’s start by looking at the most negative aspect of tankless water heaters:

How Much Does A Tankless Water Heater Cost? (Upfront Costs)

The biggest con of tankless water heaters is the initial cost. As we will see later on, the tankless water heaters do reduce your water heating bills. However, is it worth replacing a tank water heater with a tankless water heater depends on the immediate costs of the new tankless heater.

To determine the cost of a new tankless water heater, we have to sum up these 2 upfront costs:

Tankless Heater Unit Cost + Installation Cost

The price of the unit depends on how big a tankless heater you need and if you choose a gas or electric unit. Note: Tankless gas heaters are more expensive than electric units but they have lower running costs because electricity is more expensive per BTU than gas.

Gas Tankless Heater Cost + Installation (About $3,000 vs. $2,400)

Gas tankless water heaters cost anywhere between $700 and $2,500. Of course, smaller 7 GPM units will cost less than the biggest 11 GPM units. Here is a neat graph of Rinnai’s 2021 gas tankless water heater prices:

prices of rinnai gas tankless hot water heater
Rinnai is considered to be the best gas tankless water heater producer.

The cost of installing a gas unit ranges anywhere from $1,000 to $4,000. You can look at an in-depth study of how much tankless water heater installation costs here. You should also check what size tankless water heater you need here. This will give you a more accurate estimation of upfront costs.

All in all, you’re looking at a $1,700 to $6,500 upfront cost range for buying and installing a gas tankless water heater. Average households ‘get away’ with an about $3,000 full upfront cost.

To determine if gas tankless water heaters are worth it, we need to look at the prices and installation costs of standard gas water heaters.

According to Forbes Advisor, the average price of a tank water heater + installation and labor costs (installers work for $50/h to $150/h) is $1,200. At the low end, the full price can dip below $1,000, and it can reach well into several $1,000s at the high end.

As we see, the upfront cost of a tankless gas water heater vs. tank water heater is approximate:

$3,000 (gas tankless) – $1,200 (gas tank) = $1,800

What we also need to take into account is that gas water heaters last for 20 years. That means that, in a 20-year lifespan, you will need to pay for a gas tankless water heater once and for a gas tank water heater twice.

Even if you need to replace the gas water heater two times, the average estimate for 2x heater + 2x installation is $2,400; still lower than the $3,000 for a gas tankless water heater. Nonetheless, even looking at the upfront costs (and the 20-year cost difference of $600 in favor of gas tank heaters), we can see that gas tankless water heaters will be worth it.

If gas tankless water heaters save you money (and how much) will be obvious when we add the running costs.

However, before we do that, let’s do the same estimates for the upfront costs of electric tankless water heaters to see if they are worth the money:

Electric Tankless Heater Cost + Installation

Are electric tankless water heaters worth it? Let’s first tally up the upfront costs in the same way we did for the gas unit.

Electric tankless heater cost with installation can be anywhere between $300 and $1,700.

According to the Forbes article we referenced in the previous chapter, an electric tank water heater costs (with installation) about $100 to $200 less than a gas unit. That means that, on average, we can estimate that an electric tank heater cost about $1,000 with installation.

For reference, here are the costs of the best electric tankless heaters by Stiebel Eltron by kW capacity:

prices of stiebel eltron electric tankless heaters
Prices of the best electric tankless heaters range in the standard 12 kW to 36 kW range (costs from $450 to $750 without installation).

Here’s the surprising part for many homeowners interested in the financial feasibility of electric heaters: Both the upfront costs of electric tankless and electric tank water heaters are about $1,000.

What you need to take into account as well is that tankless heaters last for 20 years while tank heaters last for only 10 years.

In a 20 year lifespan, you will have to pay about $1,000 for an electric on-demand water heater. Here’s an interesting part: You will have to pay around $2,000 for a conventional tank water heater because you will need to replace the first unit after 10 years and pay $1,000 again.

Outtake: Even comparing the upfront costs, you save $1,000 in a 20-year time period by opting for a tankless electric water heater.

Now, let’s look at the most important part:

Running Costs Of Tankless Vs. Tank Hot Water Heaters

Costs + installation of hot water heaters run in terms of $1,000s. The running costs over a 20-year period, for comparison, run in terms of $10,000.

Between the two, the running costs are the most important part when figuring out if tankless water heaters are worth it.

According to the US Department Of Energy, ‘Water heating accounts for about 18% of your home’s energy use.’ An average household pays, according to DOE, $400 to $600 for hot water every year.

If we take an average of $500/year, we can calculate that an average household will pay $10,000 for water heating with conventional tank water heaters in the next 20 years.

Now, the key question is thus:

By how much we can reduce the water heater bill if we install a tankless water heater?

Here we can also look at the DOE for guidance. This is what they found out when comparing the energy efficiency of tankless water heaters vs tank water heaters:

For homes that use 41 gallons or less of hot water daily, demand water heaters can be 24%–34% more energy efficient than conventional storage tank water heaters. They can be 8%–14% more energy efficient for homes that use a lot of hot water — around 86 gallons per day. (DOE on tankless water heater savings)

An average home will use less than 41 gallons of hot water per day. As we have estimated, this will cost $10,000 in the next 20 years. If we reduce that number by installing a tankless water heater and using the median 29% lower running costs estimate, we can see that a $10,000 hot water bill becomes a $7,100 hot water bill.

Here’s the outtake: On average, an average household will save an estimated $2,900 on hot water costs in the next 20 years as a result of installing a tankless water heater.

Let’s have a look at a bigger-than-average household as well. If we take into account that we have a big 2x or 3x larger home (and hot water needs) than an average household, and we save a median of 11% on hot water costs, we can derive at these numbers:

  • 2x average hot water needs. Tank water heater hot water bills in 20 years: $20,000. Tankless hot water bills in 20 years: $17,800. 20-year running costs savings: $2,200.
  • 3x average hot water needs. Tank water heater hot water bills in 20 years: $30,000. Tankless hot water bills in 20 years: $26,700. 20-year running costs savings: $3,300.

As we have seen, in all cases, we pretty much save $1,000s over a 20-year period on hot water expenses just due to the significantly higher energy efficiency of tankless water heaters compared to standard tank water heaters.

With all these data, we can determine if is it worth getting a tankless water heater. We will do this for gas and electric unit separately:

Results: Are Gas Tankless Water Heaters Worth It? (Estimated Savings: $2,300)

Let’s tally up the 20-year average estimations to see if it’s worth getting a gas tankless water heater.

  1. Cost of gas tankless unit + installation vs. cost of gas tank unit + installation = $600 in favor of gas tankl unit.
  2. Cost of running a gas tankless unit vs. cost of running a gas tank unit = $2,900 in favor of a tankless gas water heater.

If we deduct $600 extra upfront cost from the $2,900 hot water heating savings, we get this resounding result:

Yes, tankless gas water heaters are worth it. On average, you are expected to save approximated $2,300 in 20 years by choosing a gas tankless water heater over a gas tank water here.

Results: Are Electric Tankless Water Heaters Worth It? (Estimated Savings: $3,900)

Let’s do the same calculations to see if electric tankless water heaters are worth it (Time period: 20 years):

  1. Cost of electric tankless unit + installation vs. cost of electric tank unit + installation = $1,000 in favor of electric tankless unit.
  2. Cost of running an electric tankless unit vs. cost of running an electric tank unit = $2,900 in favor of a tankless electric water heater.

Both the 20-year upfront and running costs are in favor of electric tankless water heaters. On average, a standard household is expected to save $3,900 by choosing an electric tankless water heater over the traditional electric tank heater.

In short:

Yes, tankless hot water heaters indeed save money, and quite a lot of it.

We used the best 20-year rule-of-thumb estimates and averages to quantify how much you can save by installing a tankless water heater. All the numbers for all households, big or small, gas or electric units, and so on, show the same thing:

Installing a tankless water heater will save you $1,000s in the next 20 years. Due to higher energy efficiency, tankless water heaters just make financial sense, and you can even get rebates and tax credits on top of the hot water savings.

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