What’s the Difference Between a Tank Water Heater and a Tankless Water Heater?

by | Jan 12, 2021

Most of the time, we don’t think about our water heaters. Whether we’re taking a shower, washing dishes, or running a load of laundry, we just turn on the tap and enjoy a steady stream of hot water. But just like with most things in our homes, water heaters will wear out over time. Even with proper maintenance, a water heater has a prescribed life expectancy and will eventually need to be repaired or replaced.

When it comes time to replace your water heater, there may be more options than you think. Around 90 percent of homes have a traditional storage tank water heater, usually installed in the basement or, in the case of apartments or homes without basements, in a closet or other dedicated space.

But tankless water heaters are becoming an increasingly popular alternative. Once cost-prohibitive and underperforming, tankless water heaters have become increasingly affordable and high-performance. Many models are actually more efficient than their tank counterparts, which can save you money on your utility bills. And as more homes adopt tankless water heaters, installation costs continue to decline as well.

So which water heater is the best for you? It’s more complicated than you might think. But once you know how both types of water heaters work and understand the pros and cons of each system, you should feel confident that you can make the best choice based on your family’s needs, and your pocketbook.

Tank Water Heaters

Tank water heaters, like the name suggests, involves heating water stored in an insulated storage tank to the desired temperature. Most water heater tanks range between 30 to 60 gallons, but the most common size for most homes is 50 gallons. For smaller homes, 30 gallons might be all you need to provide enough hot water; for larger homes, though, or for homes with bigger water needs, you might need a tank larger than 60 gallons, which usually involves added expense.

Tank water heaters are powered by either natural gas or electric burners, and your annual operating cost depends on which type of water heater you install. Gas water heaters will generally cost around $250 per year to operate, while an electric heater averages $580. Before you marvel at how much more efficient a gas heater is, though, you should know that the price difference reflects energy costs rather than efficiency. While natural gas is much cheaper than electricity, electric heaters are actually more efficient.

In a tank water heater, hot water is stored for ready use. While this means you get hot water to your tap quickly, it also means you have a limited supply. If your family takes three or four showers in the morning, the last person into the shower may not get much hot water at all. It takes time for the water heater tank to refill, meaning there will be some downtime before you have hot water available again.

And because your water heater is trying to keep the water at a constant temperature, it will cycle on and off throughout the day in order to maintain the correct temperature inside the tank. In other words, you’re not paying to heat the water just once; you’re paying to heat and reheat water all day (and all night) long.

The most noticeable aspect of a storage tank water heater, though, is its size. Usually, at least 5 feet tall and 2 feet wide, a water heater tank requires a significant amount of space. Like most of your home’s systems, you’ll want it out of view, which for most people means installing the tank in the basement. In Port St. Lucie, FL, this isn’t usually an option because most homes don’t have basements so the water heater ends up in the garage or a closet, which takes up valuable storage space.

Tankless Water Heaters

As you might have guessed, the defining feature of a tankless water heater is that there is no tank holding pre-heated water. Instead, a tankless water heater creates hot water on demand by passing water through a heat exchanger, which rapidly heats the water to a preset temperature.

Like storage tank water heaters, tankless heaters use either natural gas or electricity to provide heat. And like storage tank systems, your annual energy costs will be lower using gas (about $190) versus electricity (about $530). Assuming your usage stays the same, a tankless water heater will cost about $50 to $60 less, on average, to operate per year than a storage tank water heater.

Because a tankless water heater doesn’t rely on a stored supply of pre-heated water, you don’t have to worry about running out. Instead, you get a continuous supply of hot water for as long as you need it. So for the family that takes four showers each morning, the last shower will be as hot as the first one.

The one area where a tankless system can have problems, however, is simultaneous output. Because the tankless water heater creates hot water by passing it through a heat exchanger, it can only provide so much volume at one time. This generally isn’t an issue; however, if you run a load of laundry at the same time that you’re trying to take a shower, your supply of hot water may not be as robust as you’d like.

Finally, unlike storage tank water heaters, a tankless water heater requires much less space. Tankless heaters mount on the wall, which can allow them to fit in a small space without occupying much floor space. Most units average around 2 feet tall and 1 foot wide. And if space is really tight, some models of tankless water heaters can be installed outdoors, an option that’s not available for tank water heaters.


The annual cost of operating your water heater is only one of several factors you need to consider when estimating the overall cost of your water heater. While you’ll almost certainly save money on energy costs by switching to a tankless water heater, you need to also think about the cost of the heater itself, as well as the cost of installation. Finally, you should remember that both storage tank heaters and tankless water heaters will require periodic maintenance, although the cost of that maintenance can vary depending on the type.

Water Heater Unit Cost

When it comes to price, a storage tank water heater is definitely the cheaper option. Electric heaters are usually slightly cheaper, but on average you can expect to pay between $500 and $1,200 for your tank water heater, depending on manufacturer and capacity, with a larger tank costing more.

Tankless water heaters, on the other hand, will usually require a larger initial investment. Again, while electric heaters are typically less expensive, the average tankless water heater will cost between $400 and $2,000. This wider range in price is a reflection of how differently a tankless heater works. Rather than measuring the volume of the storage tank, tankless heaters are measured in gallons per minute (GPM); the higher the GPM, the higher the cost of the unit.


Installation costs are usually where storage tank water heaters and tankless water heaters separate themselves. Since most homes were built with storage tank systems, installing a new tank heater is usually easier and cheaper. You may run into some issues if your desired tank size is significantly different from the existing one, especially if you have a more space-restricted home. But for the most part, a tank water heater can typically be installed for around $600 on average.

Installing a tankless water heater is more complicated and, as a result, it’s usually more expensive. Because a tankless water heater works so differently than a storage tank system, it usually requires a more intensive installation process. For instance, it’s likely that your water supply pipes and gas lines will need to be re-run and replaced with ones that are larger in diameter. 

Electric tankless heaters also require more power than other water heaters. Depending on your home’s electrical system, you may need to hire an electrician to increase your home’s electrical service, usually to at least 200 amps. Between the plumbing and the electrical needs, your installation costs could run up to $1,500 on average.


Both storage tank and tankless water heaters require periodic maintenance to extend their life and maintain peak performance. This is especially true of tank heaters. Minerals and other deposits can build up in your tank as a result of the constant heating process. Most plumbers, like us, will recommend draining the tank occasionally to flush out the sediment.

Tankless water heaters usually require less maintenance, but be mindful if you live in an area with hard water. Minerals in hard water can build up in the heat exchanger, reducing its effectiveness over time. In areas with especially hard water, you may need to have your tankless heater flushed once per year—although a tank heater would likely require more frequent flushing in hard water areas.

Comparing Tank Water Heaters Vs. Tankless Water Heaters

While we’ve covered a lot of ground on the differences between storage tank water heaters and tankless water heaters, when it comes time to decide which heater is right for you, it’s probably most helpful to compare the different styles of water heater directly. What follows is a comparison of the pros and cons of both types of the water heaters.

Tankless Water Heater Pros:

  • A lower annual operating cost means you’ll save money over time compared to a storage tank water heater, around $50 to $60 per year depending on utility rates and usage.
  • A smaller heating unit means a tankless water heater takes up much less space than a storage tank water heater.
  • Because the tankless heater is much smaller, it can be installed in much smaller spaces—even outdoors, if your space is especially restricted.
  • Since you don’t have to wait for your storage tank to heat, you can have hot water on demand.
  • Tankless water heaters are more efficient than storage tank water heaters since a tankless heater doesn’t have to keep a tank hot all day long.
  • Tankless heaters usually last at least 20 years, almost twice as long as a storage tank heater.

Tankless Water Heater Cons:

  • Tankless heaters have a higher initial cost than tank heaters, both for the unit itself and for installation.
  • A more complicated installation process means it usually takes longer to install a tankless heater than a storage tank system.
  • Depending on your hot water usage, you may need a more expensive tankless heater to keep up with the simultaneous output. And if you have a very large home, you may need more than one heater installed to meet your needs.

Tank Water Heater Pros:

  • Tank heaters cost much less initially, both for purchasing the heater and for unit installation.
  • Because storage tank water heaters are more common, and because they typically require less retrofitting, installation usually goes fairly quickly.
  • The simpler design of a tank water heater means repairs are usually easier and less expensive than in a tankless heater.

Tank Water Heater Cons:

  • You’ll end up paying more overtime to operate your water heater than for a tankless heater, due to the relative inefficiency of a tank water heater.
  • Because storage tank heaters are so much larger, they require much more room for installation.
  • Since tank heaters rely on pre-heated water, there is a limited supply of hot water before you run out, meaning you’ll need to wait for the tank to heat before you have hot water again.
  • A storage tank water heater is only expected to last for 10 to 15 years. This means you’ll have to replace your tank water heater about twice as often as a tankless water heater.
  • When something goes wrong with a storage tank water heater, it can be messy. Many repairs calls for tank heaters involve severe leaks in the tank, which can cause a great deal of water damage to your home.

Hybrid Water Heaters

While most homeowners find themselves deciding between a storage tank water heater and a tankless water heater, one option is often overlooked: hybrid water heaters. These electric water heating systems combine the convenience of having a ready supply of heated water with an electric heat pump attached to the tank. This means your water will heat faster than in a conventional electric storage tank water heater while using only about 25 percent of the energy.

In the hybrid water heater system, the heat pump sits on top of the tank and captures warm air, transferring the heat into the water—much like how a heat pump heats your home. Unlike a traditional heating element, which creates warmth through a gas or electric burner, the heat pump is essentially moving heat rather than creating it, which is a much more energy-efficient process. And if the air around the pump is too cool to adequately heat the water, a hybrid water heater will still have a conventional heating element to make up the difference.

Hybrid water heaters are more expensive than both tank heaters and tankless water heaters, but the installation costs are generally about the same as installing a tank heater. So while you may pay between $1,000 and $3,000 on average for a hybrid water heater, your installation costs should only come to around $600 on average. And unlike other electric heaters, which usually cost around $500 per year to operate, your electricity costs for a hybrid heater could easily be cut in half, to about $240 per year.

The one drawback with hybrid heaters is the space requirement. Because they have a heat pump on top of the water tank, most hybrid water heaters require at least 7 feet of vertical space. And because it relies on the heat in the surrounding air, hybrid water heaters need around 1,000 cubic feet of circulating air, or about 144 square feet of floor space in a normal home. Still, if you have space and the money, these hybrid water heaters can save you a bundle on annual operating costs.

Choosing the Right Water Heater

Now that you have the information, the next step is deciding which style of water heater is right for you. There are a lot of factors to consider, including the cost of the heater, installation costs, annual operating costs, and your family’s water needs. There’s no single answer for which heater will fit best in your home. But equipped with the right knowledge, you should feel confident that you can make the right decision for you and your family.

If you’re interested in learning more about what system best fits your family’s needs, contact I Need The Plumber & Air Conditioning. Our team of highly-trained and experienced plumbers and technicians can help guide you through the process of choosing a new water heater, from determining your home’s water requirements to figuring out which project will fit in your budget. And with our 100% customer satisfaction guarantee, you can rest assured that you’re getting the best work at our best price.