How much do you pay to heat water?

According to the EIA, the average US household spends $296 per year to heat water. Most households have a standard water heater tank that holds between 30 and 60 gallons. For the fuel used to heat the water, about 46% of households use electricity, 48% use natural gas, and the remaining 6% use something like propane or kerosene.

The type of water heater and the fuel source greatly impact the price you pay to heat water. For example, the average household that has natural gas water heaters pays $197 per year, while the average household with an electric water heater pays $381 per year. This huge difference reflects the fact that natural gas prices have been pretty cheap. But this doesn’t necessarily mean you should switch to a natural gas water heater. Many homes don’t have natural gas connections, which can be costly to install. And some states like California are actually preventing natural gas appliances from being installed in new buildings. 

Free and Cheap Ways to Save

Setpoint Temperature

Many water heaters have a default temperature of 140 degrees Fahrenheit (F), but temperatures this high increase the risk of burning your skin! Setting the temperature to 120 F is safer and still allows for appliances like dishwashers and washing machines to effectively function. For every 10 degrees you reduce your water heater tank temperature, you save about 5% of operating costs


If your water heater tank is hot to the touch, that means it is using more energy than it should be because it’s experiencing standby heat losses. Adding a water heater tank jacket and insulating the water pipes can reduce your water heater expenses by 7-16%. 

Turn It Off

If you will be away from your home for a few days at a time, you can save on water heating expenses by turning off electric water heaters and by turning natural gas water heaters on the “vacation mode” setting.

You can also install a water heater timer that optimizes when the tank heats the water to minimize energy usage. These devices allow you to schedule the times of day when you use hot water most, so that the water tank isn’t heating water unnecessarily when no one needs it. Water heater times can further reduce your water heating expenses by another 5%!


Regular maintenance of your water heater tank allows the heating elements to operate as efficiently as they can. There are plenty of online tutorials and videos available to show you how to make this a DIY project, but it’s always safe to call in an expert!

Tank vs Tankless

How does a water heater tank work?

A water heater tank is “essentially the equivalent of a big pot of water that’s continuously kept on a stove to be used at a moment’s notice. When the water drops below a certain temperature, the “stove” (the heating element) in the water heater kicks on, and heats the water until it you’re your desired temperature setting. Then the heating element turns off again. When you start using hot water, the water that is consumed is replaced with cool water, which has to be heated.” (Source: Gilmore Air)

When purchasing a new water heater tank, make sure to purchase a high energy efficiency unit that is Energy Star Certified. It’s also important to make sure that you’re purchasing the correct size for your household. You can usually use the gallons of the tank to make a good “rule-of-thumb” estimate based on how many people live in your house. For example, the chart below shows general tank sizes that generally work well for the corresponding number of household occupants.

Source: Home Advisor

While the chart above can work well, an even better way to size your water heater tank is to use the First Hour Rating (FHR) of the water heater tank. This number indicates how many gallons of hot water the water tank can supply within an hour, starting with a full tank of hot water. You want the FHR to be within 1-2 gallons of the most gallons you would use of hot water within an hour. So maybe in the morning, 3 people shower and use hot water to make breakfast within an hour. In that case, you would want to calculate how many gallons of water your showers use and how many gallons of water you use to cook breakfast. 

How does a tankless water heater work?

Instead of maintaining the hot temperature of a big tank of water at all times, tankless water heaters don’t store hot water. Instead, they heat water at the exact moment that hot water is being demanded somewhere in the house. So because they don’t have standby losses, they can be anywhere from 10-30% more efficient than a standard water tank.

To make sure you have the right size tankless water heater, you need to know your peak flow rate demand, as opposed to the peak volume demand that was needed for the water heater tank size. The peak flow rate is the maximum amount of gallons of hot water per minute you will need at any given point throughout the day. This article can help you calculate your peak flow rate to properly size your new tankless water heater.

Which is better?

Tankless water heaters generally have lower operating costs because they eliminate standby losses. But the capital cost of tankless units is more expensive, and they absolutely must be cleaned out every 6-12 months to operate properly. And since the technology is a bit more complex, the installation and maintenance fees can be more expensive for tankless units compared to water heater tanks. 

But if they’re well-maintained, tankless units have the potential to last for up to 20 years, while tanks usually need to be replaced after 10-15 years. Tankless units are convenient for households that like to use a lot of hot water at once, like if everyone likes to shower in the morning. If you had a water tank, you might run out of hot water because it can only hold so much at a time. As long as your tankless unit is properly sized for your peak hot water demand, you shouldn’t run out of hot water.

So there are pros and cons for both water heater tanks and tankless water heaters. Consult with your local water heater company to see which makes most sense for your hot water needs. 

Heat Pump Water Heaters

Heat pump water heaters can be 2-3 times more efficient than a standard water heater. Heat pump water heaters heat the water by using heat from the surrounding air, as opposed to using a heating element to generate heat themselves. Because of this, heat pump water heaters usually work best in warmer climates, but they can be installed as a hybrid with a conventional water heater tank in colder climates. 


If you use a geothermal heat pump to heat and cool the air inside your home, you can install a device called a desuperheater to extract heat from the geothermal heat pump to heat your water. Depending on how warm the local climate is, desuperheaters can extract enough heat to heat your water for free

Disclaimer: Please consult with a professional before making any upgrades to your water heater, water pipes, or home. Any and all upgrades should maintain proper health, safety, and sanitation levels within your homes. It All Adds Up and its affiliates are not responsible for any household damage or personal injuries that should occur from following any suggestions from It All Adds Up.


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