Making your home more energy efficient is great—not only because it helps the environment, but because it lowers your gas and electric bills, as well. It is no secret that energy-rated appliances are often a big upfront investment, as they can cost more than double what an energy-wasting model does. It can be hard to tell if the month-to-month savings will actually make up for this higher upfront cost. According to Energy Star, 14 percent of your monthly bill comes from your water heater, making it the largest expense behind heating and cooling, and therefore one of the best areas to look for potential savings.

What are tankless water heaters?

Traditional water heaters store water in a tank where it is kept warm until needed for use. This means that energy is being used to keep water heated even when you don’t need it. Tankless models, on the other hand, heat water as it flows through the device, letting you cut down on energy costs.

How much do they cost?

Tankless models do cost more than traditional water heaters. There is a wide range of prices for both traditional and tankless models depending on brand, power and energy efficiency. You can get a decent gas-powered, traditional water heater for $500, while a tankless model will cost around $1200. It can be hard to imagine that this significant upfront cost will pay off in the long run, but in order to know for sure you really have to take a hard look at long-term operating costs.

How much can it save me?

Reports vary on how much money tankless water heaters actually save. According to Energy Star, they can save $100 or more per year, while Consumer Reports estimates savings to be only $70–80 per year. To estimate your savings, think about your family's water usage. If you have a large family that uses more water, your savings will be higher than someone who lives on their own and uses less water.

The bottom line

The average lifespan of a water heater is 13 years, although it is estimated that many tankless models can last for up to 20. If your new, tankless model saves you $70 per year over 13 years, you will have saved just over $900 dollars in energy bills. Since the tankless model only cost $700 more to begin with, that's $200 net savings when you add the cost of purchase with the cost of use. When you also consider the reports that you will have to replace tankless models less frequently, the potential savings becomes even more significant.

Other considerations

Making the switch to a tankless water heater is a big investment, and there is more to consider than just the high upfront cost and long-term savings. Tankless models take up significantly less space, leaving more room for your couponing stockpile to grow. You may also be able to lower the upfront purchase cost by seeing if your purchase can qualify for a tax rebate. You may be able to get up to 10 percent back on the purchase of a new, energy efficient water heater making the initial investment more feasible. Click here for more information. Lastly, the fact that the water is heated as it runs through the device means that no one will have to deal with a cold shower, because there is no tank to run out of hot water.

On the negative side, you will lose your hot water if you have a power outage, since there is no reservoir of preheated water on hand. Also, some people have reported that their tankless models can’t handle the demand of laundry and showering simultaneously. If you have concerns because you live in a high-demand household, it is important to make sure you are not underpowered.

Making the switch to tankless water heater can be a big investment, but in the long term you can see significant savings to both your wallet and the environment.

This is a guest post by April from Grand Blanc, MI
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Do Tankless Water Heaters Really Save You Money?