Cost of Tankless Water Heater vs Tank Water Heater(2024)

Updated on:
January 6, 2024

When choosing between tank storage water heaters and tankless water heaters for home hot water needs, it’s important for homeowners to get an unbiased opinion from a manufacturer that supplies both technologies. 

There are still many instances where storage tank water heaters are ideal, but the number of situations where tankless water heaters are the superior option is growing.

Whether you’re buying a water heater for a new home or replacing a broken one, you should consider the various types of water heaters on the market and how much they cost.

The Difference Between Tankless Water Heaters and Storage Tank Water Heaters 

Both tank water heaters and tankless water heaters have pros and cons. When space is restricted, a tankless water heater is an excellent option. It provides instant hot water, eliminating the need to wait for the shower to warm up. However, a tankless water heater is often more costly than a storage tank water heater, which may put you off if you have a limited budget. 

Taking into account the following details might help you decide which type is best for your household:

Storage tank water heaters

The conventional storage tank water heater has been the workhorse of the domestic water heating industry for quite some time. Since the specifications for either natural gas or electric are almost similar, replacing your old, worn-out tank water heater with a new tank style heater of either energy type is a simple and efficient process. Here’s how they differ from tankless heaters:

  • It’s cheaper to buy, install, and maintain a storage tank water heater than a tankless one. 
  • The effects of hard water and scale building are significantly reduced with a storage tank water heater compared to a tankless water heater. 
  • Tank water heaters have higher running expenses because they heat water to a specified temperature and then reheat it when needed.
  • In older homes, where upgrading the gas or electric supply to support tankless water heaters would be very expensive, retaining traditional tank water heaters is usually the most cost-effective option. 

In addition, storage tank water heaters may supply far more than the average of 3 to 5 GPM (gallons per minute) of hot water that tankless heaters provide. Tank water heaters have long been the go-to units for restaurants and other commercial applications because they can keep up with demand for 50 gallons or more of hot water at once.

Tankless water heaters

As the name implies, tankless water heaters do not store hot water, they only heat water when it’s needed. Here are some of their salient features:

  • They are more costly but more energy efficient than traditional water heaters with a storage tank.
  • Since a tankless water heater warms water on demand, you will never run out of hot water. This is particularly handy for large families or homes with higher hot water consumption, such as those with a soaking tub or spa system. 
  • When compared to bulky storage tank water heaters, tankless water heaters are significantly more compact. 
  • They may be hung on the wall or stowed away in a small closet or cabinet to save floor space.

Tankless water heaters employ a gas burner or electricity to power a heat exchanger that heats water on demand. They tend to be more energy efficient than storage tank heaters as they have an energy factor (EF) of 92–94% (compared to 60–85% for storage tank water heaters). In other words, they use close to 94% of their energy to heat water.

Their rate of hot water supply varies between 3 and 5 GPM, with gas-powered versions providing more hot water than most electric types. In larger homes, 5 GPM is often insufficient. If you’re running the washing machine and dishwasher at the same time, or if you’re bathing while the dishwasher is running, 5 GPM is definitely not enough. This issue may be addressed by installing two tankless water heaters in the house, or by purchasing separate, smaller tankless water heaters to heat water for individual appliances with high hot water needs.

For a more detailed comparison of storage tank and tankless water heaters, read my article on electric vs gas tankless water heaters.

Factors That Affect the Cost of Water Heaters

Below are several factors that determine the purchase price and installation costs for both tankless water heaters and storage tank water heaters:

Location

Installation costs will vary depending on the location of the hot water heater in the home. For storage tank water heaters, installation costs may increase, for instance, if the unit must be installed in a hard-to-reach location, such as the basement or a nook of the attic, where carpentry work may be needed, which will increase labor and parts costs as well. 

As for tankless water heaters, especially point-of-use water heaters, installation costs can also increase if you have such a small bathroom that a plumber and helper can’t work side by side.

Size

The number of people in your house will determine the size of the water heater you need, and the cost of the heater will grow proportionally with its capacity. When there are just two people living in a house, a 40-gallon water heater may easily provide all of their hot water requirements for $320–$1,600. A 75-gallon water heater (average cost: $900–$3,000) or an 80-gallon water heater (average cost: $1,000–$3,200) may be appropriate for houses with five people or more. 

Ventilation

There are two types of ventilation: direct and power. Essentially, a power-vent water heater expels combustion gases from the home using an electric venting fan, while a direct-vent water heater discharges these gases via a chimney or exhaust pipe. Gas water heaters tend to have higher installation costs compared to electric water heaters. This is due to the complicated venting procedure that is required to expunge toxic gas fumes from the house.

Quality

You get what you pay for. If you intend to use your water heater on a daily basis, it’s in your best interest to invest a little bit more money on a higher quality unit. You should expect to pay extra for a storage tank or tankless water heater of higher quality than you would for a tankless water heater of lesser quality.

Materials 

Installation of a water heater requires a variety of materials, including venting pipes, pressure valves, water and gas piping, thread compound, and solder. Professional plumbers may need more materials for more complex installations, which in turn raises the installation costs.

Permits

Work permits and post-job inspections are necessary in various parts of the US in order to replace a home’s water heating system. Work permits for this sort of project are readily acquired via your plumber or by visiting a local regulatory body, which will cost you between $50 and $100 depending on where you live. In many circumstances, securing the permit also pays for an inspector to come out and check the completed project. Check with your state or county to see whether a permit is required to install a storage tank or tankless water heater.

Relocation of a water heater or fuel type conversion

The cost of having a water heater relocated varies substantially. A water heater relocation might cost as little as $200 or as much as $10,000. Changing your water heater’s fuel type can also be pricey. Switching from electric to gas, for example, requires the installation of new gas lines, which may cost between $1,500 and $2,300.

Addition of a water heater expansion tank

A professional plumber may advise you to install an expansion tank (also known as a thermal expansion tank) to your storage tank water heater. It functions as an overflow receptacle by absorbing excess water volume caused by heating water as well as absorbing the fluctuations in the incoming water supply pressure.

As water expands due to thermal expansion when heated, the water heater generates extra water volume every time it warms water. When heated to 120 degrees Fahrenheit, the cold water in a typical 50-gallon storage tank water heater is estimated to expand to 52 gallons.

This additional water volume may cause excess pressure in the plumbing system, and if the pressure is high enough, it can damage the water heater, the plumbing fixtures, and the water pipes themselves over time. Expansion tanks range in price from $100 to $450.

Labor

Local plumbers and HVAC professionals charge $40 to $175 per hour to install tankless heaters, based on demand, task complexity, expertise, and other criteria. Labor accounts for around half of the total cost, with materials and components accounting for the other half. Labor charges for installing a tankless water heater system range from $120 and $525.

Normally, this service takes around three hours to complete, unless there are unique situations, such as old pipes that need cleaning or replacement. Installations of storage tank water heaters range between $650 to $2,100 on average, including the new water heater, supplies, and labor.

On-site problems

If you need a storage tank or tankless water heater that will supply water to a large household, you might be forced to purchase a booster or a small point-of-use tankless water heater in order to accommodate every water fixture in your home. 

Calculating Water Heater Annual Operating Costs

Prior to selecting and comparing the prices of different models, you must decide the ideal water heater size for your house. To calculate the yearly running cost of storage water heaters, tankless water heaters, and heat pump water heaters, knowledge of the following information is necessary:

  • Energy factor (EF)
  • Unit cost of electricity by kilowatt-hour (kWh)
  • Unit cost of fuel by British thermal unit (Btu) or therm (1 therm = 100,000 Btu)

Then use them in the following calculations:

For oil and gas water heaters

365 days in a year 0.4105 therms/dayEF x fuel cost (therm) = estimated annual cost of operation

For example, if you have a natural gas water heater with an EF of 0.58 and a fuel cost of $0.00000109/therm, your annual cost of operation will be calculated as follows:

365 days in a year 0.4105 therms/day0.58 $1.09 = $282

For electric water heaters

365 days in a year 12.03 kWh/dayEF x fuel cost ($/kWh) = estimated annual cost of operation

For example, a heat pump water heater with an EF of 2.6 (heat pump water heaters have an EF thats 2.5 times higher than standard electric water heaters) and an electricity cost of $0.1301/kWh

365 days in a year 12.03 kWh/day2.6 $0.1301 ($/kWh) = $219.7

The equations are provided by the Department of Energy. They are based on their hot water heater test procedure, which assumes that the incoming water temperature is 58°F, the hot water temperature is 135°F, and that a three-person household uses an average of 64.3 gallons of hot water per day.

Tankless Water Heater Cost

When it comes to tankless water heaters, buyers usually have two options: point-of-use and whole-house tankless water heater systems. Each system has its own pricing point, application scenarios, and merits.

The typical point-of-use tankless water heater cost is $100 to $300, with an average price of $150. These basic electric designs are installed close to a primary fixture, appliance, or shower, and they have sufficient power to effectively heat several bathrooms and an extra faucet.

This type of tankless water heater is very efficient due to the small distance the heated water must travel. Point-of-use systems are not suitable for big residences since they can only reach up to 50 feet and provide 0.5 to 2 gallons of hot water per minute.

A whole-house system is a good choice if you have a large home with a couple of bathrooms and numerous hot water fixtures. The cost of installing a whole-house tankless water heater ranges from $450 to $1,500, depending on the size of the unit and the difficulty of the task. Whole-house systems are powered by electricity or gas and range in capacity from 5 to 10 gallons of hot water per minute.

Some homeowners combine heating systems, installing a whole-house unit for main heating and a point-of-use system in an extra bathroom for enhanced efficiency. This is useful if multiple people in the house are often showering at the same time.

Tankless water heater installation costs by fuel type

The type of fuel your ideal tankless hot water heater uses is also a major determining factor of its installation price. Below, I’ve listed the average installation costs for the major types of tankless water heaters on the market: 

Electric tankless water heaters 

As the most affordable option, installing an electric model tends to fall between $800 and $1,500. Note that you won’t have to spend on ventilation systems or related maintenance.

Natural gas tankless water heaters 

The flow rate of natural gas heaters is better than that of electric heaters. These tankless water heaters are also a little more expensive. They cost between $1,000 and $1,500 to install, and running the gas costs an extra $200 a year.

Propane tankless water heaters

While the installation of a propane tankless water heater costs the same as that of a similar natural gas unit ($1,000 to $1,500), the cost of propane itself may mount up, with annual energy costs averaging about $350.

Solar tankless water heaters

A more costly investment initially, prices range from $1,800 to $6,000 (and even more). Remember, though, that solar water heaters may reduce your heating costs by as much as 80% and that you can get a 30% tax credit for installing one.

To find out how much it costs to maintain your tankless water heater, read this article.

If you opt to go the tankless route, my review of the best tankless water heaters covers the best brands on the market. 

Storage Tank Water Heater Cost

Here, the size of the tank, or the actual tank, is important. Storage tank sizes range from 20 gallons, which are exceptionally rare, to 100 gallons, which are also quite uncommon. However, 90% of the time, you’re more likely to come across 30–80 gallon models. Below is a breakdown of their costs:

  • 80-gallon storage tank water heaters: A tank larger than 80 gallons is probably unnecessary because it’s overkill for domestic applications. Depending on the aforementioned factors, the price of an 80-gallon tank can be anywhere from $1,000 to $3,500.
  • 60-gallon storage tank water heaters: A 60-gallon tank may go for anywhere from $900 to $3000. Although uncommon, this size can be useful in larger households that have a very high demand for hot water.
  • 50-gallon storage tank water heaters: This size of tank is not as common as 40-gallon and 60-gallon tanks. They cost between $500 and $1500, but this average price can change depending on the fuel type.
  • 40-gallon storage tank water heaters: This is the most common size of water heater storage tank. This tank size will cost between $300 and $1000, which is a reasonable price range for something that will last a decade.
  • 30-gallon storage tank water heaters: The price range for a 30-gallon tank water heater is between $250 and $900. This is the minimum size you should consider for a modest home. It is appropriate for small cabins or urban townhouses with minimal hot water usage.

Storage tank water heater installation costs by fuel type

Just like tankless water heaters, the installation costs for storage water heaters vary significantly depending on the type of fuel they use. 

Gas and electric storage water heaters

Electric water heaters are usually the least expensive to purchase and install. In the long-term, though, they tend to cost more to run. Gas or propane water heaters cost more to buy, set up, and install, but they cost less to run.

A 40-gallon storage water heater can meet the low-to-moderate hot water needs of a home with three to four people. The national average cost to install a 40-gallon tank water heater is between $850 and $2,600. Most people pay around $1,400 for a 40-gallon gas storage water heater that is a direct replacement for an existing model. The lowest project cost is $620 for the installation of a 40-gallon electric storage water heater in an open location.

Hybrid heat pump storage tank water heaters 

A hybrid heat pump water heater is the best choice if you aren’t worried about space or cost. This is one of the most expensive options on the market. Hybrid water heaters are the most energy efficient. As such, they cost between $1,200 and $3,500. Small homes don’t work well with these heaters because the water heater needs 7 feet of space from the floor to the ceiling and 1,000 cubic feet of air around it. 

Indirect water heaters 

Indirect water heaters cost between $800 and $1,500 and are a useful and flexible choice. The best feature is that you can use gas, oil, propane, electricity, solar power, or any combination of these from a nearby source.

An indirect water heater uses a storage tank and heat from a boiler or furnace to ensure you and your family have enough hot water. In an indirect system, your main boiler or furnace heats water and sends it through a heat exchanger that’s attached to a space heating unit. The water then moves into a tank, similar to traditional water heaters, where the hot water remains until it is needed.

Solar storage water heaters

You can see a solar water system on any “off the grid” home building show. Over time, this system saves the owners money, but it costs a lot initially. The cost of installing a solar water heater ranges from $1,800 to $5,500, but it can go as high as $13,000, depending on the model, the cost of installation and maintenance, and whether a competent contractor is available.

If you pick a storage tank model, read my review of the best 50 gallon tank storage water heaters on the market to find the best unit for your home.

Final Thoughts

A tankless water heater will cost more to buy and install than a storage tank heater. In the end, if cost is an issue, you can use the above equations to figure out which water heater option best meets your needs and means.

If your household has regular simultaneous hot water demand, you should consider the cost of installing two tankless hot water heaters to keep up with demand vs. installing a larger capacity storage tank water heater. 

Whichever option you choose to deliver hot water, proper research is a good idea for a purchase of this magnitude, and I hope this guide was helpful.

If you’re interested in exploring other comparisons of water heaters, we suggest checking out our articles on “Indoor Vs Outdoor Tankless Water Heater,” “Electric Vs Gas Tankless Water Heater,” and “The Complete Buyer’s Guide to Gas vs Electric Water Heater.”

These informative resources delve into the differences and benefits of each system, equipping you with the knowledge needed to make a well-informed decision based on your specific needs and preferences.

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