Tankless vs tank water heater: the ten-year cost, with the install included

Every tankless vs tank water heater cost comparison starts with the energy saving, so let us start there and then get to the numbers that actually decide it.

Where the saving comes from#

A storage tank keeps 40 to 50 gallons at temperature twenty-four hours a day. Heat leaks out through the jacket, and the burner or element runs periodically to replace it, whether anyone is home or not. That is standby loss, and eliminating it is the entire efficiency argument for tankless.

For a modern insulated gas tank in conditioned space, standby loss runs roughly 0.5 to 1.5 therms per month. At $1.40 a therm that is $8 to $25 a month, or $100 to $300 a year. In an unheated garage or a cold basement, the higher end.

But that is the gross figure. Tankless units have their own losses — a small standing pilot on older designs, control electronics on newer ones, and a cold-start penalty every time the burner fires. Net saving in practice is generally quoted at 10 to 20% of total water heating energy, and the US Department of Energy's own guidance puts it at 24 to 34% for low-use households and 8 to 14% for high-use ones.

Call it $40 to $90 a year for a typical gas household. That is the number the whole comparison has to work with.

Gas: the ten-year arithmetic#

Two scenarios, because the installation cost swings this far more than the energy does.

Scenario A — like-for-like replacement, existing venting reusable

At ten years the tank is still ahead by $1,850. Push it to twenty years and the tank needs replacing once more, adding $1,500 plus inflation, while the tankless unit is reaching the end of its first life. The totals converge somewhere around year 17.

Scenario B — new venting and a gas line upsize required

Add $1,200 of venting and $700 of gas line work to the tankless column. Installed cost becomes $4,700, and the crossover moves past year 25 — beyond the appliance's expected life. In that scenario tankless never pays back on energy.

The exception, and it is a real one: an outdoor-mounted unit removes the venting cost entirely, which is why the outdoor propane units are priced the way they are. That configuration is discussed in our APUS tankless water heater review, with its own trade-off around freeze protection.

Electric: the arithmetic is worse#

Electric tankless is the worst option in this table on cost, and it is not close. The electrical work is the reason — 112.5 amps for a 27 kW unit means breakers, conductors, panel spaces and frequently a service upgrade. the electrical requirements for electric tankless units covers what that involves.

The row worth staring at is the third column. A heat pump water heater moves heat instead of generating it, runs at an effective efficiency of 300 to 400%, and costs about a third of an electric tank to run. On an electric supply it is comfortably the cheapest option over ten years, and it is the one nobody brings up in a tankless-versus-tank conversation. It has real drawbacks — it needs about 700 cubic feet of air space, it cools and dehumidifies the room it sits in, and it is audible — but on cost it wins by a wide margin.

The arguments that survive scrutiny#

If the money does not work, why does anyone buy tankless? Three reasons, all legitimate, none financial.

Endless hot water. A tank has a finite capacity and a recovery rate. Run it dry and you wait forty minutes. A correctly sized tankless heater does not run out, ever. For a household where three people shower consecutively, this is a daily quality-of-life difference and it is worth money to people even though it does not save any.

Floor space. A 50-gallon tank occupies roughly 6 square feet of floor and stands 5 feet tall. A tankless unit is a box on a wall, or in the outdoor case, not in the building at all. Recovering a closet or a garage bay has real value, particularly in a small house.

Lifespan. Twenty years against eleven. This is the strongest financial argument and it does not show up in a ten-year comparison, which is exactly why ten-year comparisons make tankless look worse than it is. Over a thirty-year ownership horizon the tank needs replacing twice and the tankless unit once.

No catastrophic failure mode. A tank fails by leaking, and 50 gallons on a floor is a genuinely expensive event. A tankless unit holds about a litre.

What we would actually recommend#

On natural gas, replacing a failed tank, with reusable venting: tankless is a reasonable choice. You will not save money in a decade, but you get endless hot water and a longer service life for a premium of about $1,300.

On natural gas, where new venting is required: stay with a tank unless the endless hot water or the space matters to you specifically. The money is not there.

On propane, outdoors, in a mild climate: tankless makes the most sense of any configuration, because the venting cost disappears.

On electricity: buy a heat pump water heater. Not a tankless one. The running-cost difference is large enough that nothing else in the comparison matters.

Before any of this, size the thing correctly — an undersized tankless heater is worse than the tank it replaced. how to size a tankless water heater has the method, and our tankless sizing calculator does the arithmetic.