Also called “demand-type” or “instantaneous water heaters,” tankless water heaters deliver warm water only when you want it. Conventional water heaters, on the other hand, perpetually heat water whether you need it or not.

Traditional hot water tanks use electricity or gas to heat and store hot water until that magic moment you decide to take a shower or wash your dishes. As faucets dispense hot water, cold water refills the tank, and the heating process begins again.

If you use hot water faster than your tank can warm the water, you’ll find yourself feeling the side effects, in the form of a cold shower.

Tankless devices, on the other hand, heat water on the way to your faucet; as the name implies, there is no the storage tank. When you turn on the hot water tap, cold water flows into your tankless unit, which uses a much more intense electric current (or blast of gas) to quickly heat water on the way out your tap. Theoretically, the supply of hot water is unlimited.

Tankless water heaters, which can be as small as a suitcase, can produce hot water at the rate of 2 to 5 gallons per minute. If only one person is taking a shower, which requires a flow rate of about 1 to 2 GPM, then you’ll have a lovely, long-lasting hot spray.

Granted, a traditional hot water tank could also deliver the necessary 1 to 2 GPM for a long hot shower… but suppose you are taking a shower while someone is washing dishes (3 to 7 GPM), or your washer is cleaning a load of clothes (1.5 to 3 GPM). Add up all those GPM figures, and a regular heater falls short of your total hot water demand.

The solution is to either stagger hot water usage, install more than one hot water tank, or install a tankless water heater.

How much do tankless water heaters cost—and how much will they save you?

The U.S. Department of Energy says that if you use 41 gallons or less of hot water each day, tankless water heaters can be 24% to 34% more energy-efficient than conventional hot water storage tanks. If you use 86 gallons a day, the efficiency drops to 8% to 14%. The energy ratings institution Energy Star estimates a typical family can save $100 or more a year with a tankless water heater.

But here’s the rub: Tankless water heaters cost up to three times more than conventional heaters to buy and install. A whole-house tankless water heater costs $1,100 to $3,500 and up, and installation—including upgrading electrical and gas pipe systems— can add $1,000 to $3,000 to those costs. As a result, it might take decades to recoup the cost of your energy-saving appliance.

On top of that, tankless water heaters can be expensive to maintain.

“I’m not a big fan,” says Tom Bigley, a Pittsburgh plumber for 36 years and director of plumbing services for the United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry. “They are maintenance-intense and expensive to repair. With parts and a basic service call, you’re at $300 to $400. Is the money you’re saving on energy bills worth that?”

Bottom line: As is the case with most energy-saving appliances, you should carefully weigh the costs of a tankless water heater against the long-term savings to determine whether one’s right for you. If your current setup gives you enough hot water, you’re probably fine as is; but if you’re cringing every morning at the prospect of a cold shower, a tankless water heater could be worth its weight in gold.

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