Tankless hot water heaters have been known to use anywhere between 30% to 50% less energy than conventional water heaters with storage tanks. This depends entirely on your water usage, however, using a tankless water heater can save an average household up to $100 or more on their energy bills.

Tankless models, which are sometimes referred to as instant hot water heaters or on-demand water heaters, are powered by either gas or electric sources and only heat your water when you turn on the faucet.

One of the main advantages to using a tankless water heater is that they eliminate the need to store large amounts of hot water in a tank. Storage tanks require your heater to run continuously to maintain a certain water temperature.

On the other hand, tankless models only heat the water that’s actually needed, which uses far less energy than conventional models, since they don’t have to run when there is no demand for hot water.

Because of this, tankless hot water heaters are capable of providing a virtually endless supply of hot water, as long as the unit is operating within its capacity.

Still, if you’re thinking about replacing your conventional hot water heater with the tankless variety, it’s important to understand how they work, as well as the pros and cons that come with using one.

Below, we’ll take a quick look at how tankless water heaters work, as well as their advantages and disadvantages.

Read more about the difference between tankless and conventional water heaters here.

Advantages of Tankless Hot Water Heaters

Instead of storing your hot water in a tank, tankless models heat your water as it’s being drawn through the unit. These models have a heating coil inside them, which quickly heat the water to the desired temperature before it reaches your faucets.

One major benefits to using a tankless water heater is that, depending on where you live, you may be eligible for a federal tax rebate of up to $300.

Endless Hot Water

As mentioned, tankless water heaters virtually never run out of hot water. This is because they heat the water as needed instead of storing it in a tank. This also eliminates standby heat loss, which refers to when your hot water tank is losing heat from not being used, which essentially wastes energy.

Life Expectancy

Another major advantage to using a tankless water heater is that they last between 5 to 10 years more than conventional models. This is mostly because they don’t have a storage tank, which is susceptible to corrosion and leakages over time. This also means that there is no risk of coming home to a flooded basement.

Save Space

Tankless water heaters are also much smaller than conventional models, which can be highly beneficial if you’re living in a relatively small home. Tankless units can even be mounted directly to a wall, which saves you even more space in your home.

You can even find tankless heaters that are small enough to be installed directly under a sink, in your cabinets, or even in a closet close to where the hot water will be used.

Or, tankless units can even be installed on a wall outside your home, as long as it’s equipped with an anti-freeze kit for the winter months.

Environmentally Friendly

By far, the most important benefit that comes with using a tankless hot water heater is that they are far more energy efficient than conventional models with storage tanks.

Instead of storing your hot water, tankless heaters only use up enough energy to heat the water that is being used. No more, no less.

Furthermore, electric tankless water heaters don’t produce any harmful greenhouse gases, which means that they’re excellent for environmentally conscious homeowners.

Disadvantages of Tankless Hot Water Heaters

While there are many advantages to using a tankless hot water heater, they also come with their own set of drawbacks. For starters, purchasing a tankless water heater typically costs two to three times as much as a conventional hot water heater.

Let’s take a look at a few more of the disadvantages of using a tankless model. And read about the best tankless water heater reviews.

Water Supply

While tankless models are capable of providing an endless supply of hot water, the output is divided between all the fixtures in your home. This means that a tankless unit will not be able to supply hot water to several fixtures at the same time.

Another drawback is that tankless models usually don’t have a modulating temperature control. This means that you’re likely to experience occasional temperature fluctuations when you adjust the flow rate coming out of your fixture.


When replacing an existing hot water tank, you may need to install additional circuit or natural gas lines to accommodate your new unit. This also means that you’ll need to properly vent your unit if you decided to have a gas or propane model installed.

Regardless, installing a tankless water heater is typically more expensive than installing a conventional model.

Greenhouse Gases

Although they are still more energy efficient than conventional hot water tanks, gas-powered tankless units produce greenhouse gases, which can be harmful to the environment.

Gas units also need to be serviced annually to ensure that they are performing properly, which can be an added expense to your water bills.

Flow Rates

Another drawback to a tankless unit is that they require a minimum flow rate of at least 0.5 gallons per minute (GPM). Therefore, if you live in an older home with poor water pressure, a tankless model might not be the best option for you.

Other Factors to Consider

It’s important to keep in mind that heating your home’s water typically accounts for up to 20% of your home’s annual energy costs. This means that the heater you choose will significantly affect how much it costs to supply your home with hot water throughout the year.

When it comes to choosing between an electric or a gas-powered unit, electric is generally cheaper in terms of purchase price and installation. However, natural gas is typically cheaper than the cost of electricity. But this will vary depending on where you live.

Finally, when shopping for tankless water heaters, just make sure to compare their “Energy Guide” stickers to find a unit that is as efficient as possible.

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