Tankless vs Tank Water Heater: Real Savings and Winter Flow Where You Live

A gas tankless water heater uses about a third less gas than a federal-minimum gas tank, roughly $90–$210 a year in the 12 cities we priced, but only about $18–$42 a year less than an ENERGY STAR tank. Its hot water flow also depends on how cold your tap water is: the same 199,000 Btu/h unit delivers about 4.8 gallons per minute in Minneapolis in February and 7.4 in Phoenix in January. For electric homes, a tankless heater saves almost nothing over an electric tank; a heat pump water heater is the efficient electric choice.

Below: how both are rated, winter flow for 22 cities, yearly cost, and when each type makes sense.

Tankless vs. tank at a glance

A tank water heater keeps a tank of water hot and ready, and loses some heat while it waits. A tankless (instantaneous) heater fires only when a tap opens, so it has no stored water to lose heat from, but it can heat only so many gallons per minute. Both are rated with the Department of Energy’s Uniform Energy Factor (UEF): the higher the number, the less energy per gallon of hot water.⁴

*High-usage draw pattern: 84 gallons of hot water a day, the largest household the federal test models. Minimums from 10 CFR 430.32,⁵ ENERGY STAR levels from its criteria,⁶ the heat pump median from 316 certified high-usage models.⁸ Yearly energy is the test’s own formula: 365 days × 84 gallons × 8.24 lb × 67°F ÷ UEF.⁴ It matches ENERGY STAR’s listed 178 therms for a 0.95 tankless model and comes within 1% of FEMP’s 3,437 kWh for a 0.95 electric unit at 55 gallons a day.^7,9

Why tankless flow depends on your tap water

A tankless burner or element adds a fixed amount of heat per minute, so its flow depends on the temperature rise: your setpoint minus the temperature of the incoming water. Box ratings hide this. ENERGY STAR’s criteria define the rated flow plainly:

The GPM is measured over a 67°F temperature rise

The federal test procedure feeds the heater 58°F water and draws it at 125°F.⁴ At home, DOE’s Federal Energy Management Program suggests a 120°F setpoint for most residential uses,⁹ and your incoming water is rarely 58°F. With the burner output fixed, flow scales with the rise:

Flow at your rise = rated gpm × 67 ÷ (setpoint − inlet temperature)

For an electric tankless heater: gpm = kW × 3,412 ÷ (8.24 × 60 × rise), using the test’s 3,412 Btu per kWh and 8.24 lb per gallon. A 27 kW unit makes 2.8 gpm at a 67°F rise.⁴

Among 320 ENERGY STAR natural-gas tankless models, those rated at 199,000 Btu/h (the most common size on the list; ENERGY STAR’s residential tankless category stops below 200,000 Btu/h) list a median of 5.8 gpm at a 67°F rise, with a range of 5.4 to 6.0.^7,6

Winter flow by city: our 22-city estimate

We estimated each city’s incoming water temperature month by month with the mains-water model (Equation 29) in the Department of Energy’s Building America House Simulation Protocols, written by the National Renewable Energy Laboratory.² It needs only the annual average air temperature and the gap between the warmest and coldest months, taken from NOAA’s 1991–2020 normals for the station nearest each ZIP code, the same climate normals behind our climate guides.¹ Because buried pipes lag the air, the coldest water arrives in February across most of the country, a few weeks after the coldest air.

In Fargo, February water needs an 84°F rise, so a 5.8 gpm gas unit drops to about 4.7 gpm. Electric units are much smaller: a 27 kW model gives 2.2–2.6 gpm through a Northern winter, about one shower plus a sink.

How many showers can run at once?

A shower mixes hot and cold water; the Building America protocols assume 110°F at the showerhead.² A standard showerhead uses 2.5 gallons per minute, the federal maximum, and a WaterSense model no more than 2.0.^5,10 In Minneapolis in February, a 199,000 Btu/h gas unit runs about 2.8 WaterSense showers at once; in Phoenix in January, about 4.6. A 27 kW electric unit runs about 1.3 showers in Minneapolis and 2.2 in Phoenix.

The model has limits. Its authors fit it to measured data from several locations and list open questions, including:

Future work includes acquiring quality data sets, testing the model in northern climates

It estimates water from a buried municipal main; we found no comparable source for private wells. For your true number, run cold water for a minute in midwinter and measure it.

Operating cost: what tankless really saves

The saving depends on what you compare against. Many guides repeat a 24–34% efficiency gain for tankless; ABC Plumbing’s comparison gives that range for households with average hot water use and credits it to the U.S. Department of Energy, but DOE’s consumer page on tankless heaters is no longer online, so we could not check the conditions behind it.¹⁷ In the federal test, the gap is 34% against a minimum-efficiency gas tank (178 vs. 270 therms a year) but under 10% against an ENERGY STAR gas tank (178 vs. 197).⁴ At the federal minimum, a 50-gallon gas tank tested on the high-usage pattern needs a UEF of only 0.63; an ENERGY STAR gas tank must reach 0.86, and an ENERGY STAR tankless 0.95.^5,6 We priced all three in 12 of our cities at EIA’s state-average residential gas price for 2025, and scaled the test’s 67°F rise to each city’s annual average rise to 120°F.¹²

Against a minimum-efficiency tank, a tankless unit saves about $90–$210 a year, most where gas is dear: Boston, at $2.42 a therm, saves the most. Against an ENERGY STAR tank, the saving drops to $18–$42. Every $1,000 of extra installed cost takes 5 to 11 years to earn back against a minimum tank, and smaller households save less.

Electric homes: tankless is not the efficient choice

Electric resistance heat turns each kilowatt-hour into 3,412 Btu,⁴ so a resistance heater cannot rate much above 1.0, tank or tankless. The federal minimums are nearly identical, 0.93 for a 50-gallon electric tank and 0.92 for electric tankless,⁵ which leaves a tankless model only the tank’s standby loss to save. A heat pump water heater moves heat from the surrounding air instead; certified high-usage models have a median UEF of 3.8.⁸ At Illinois’s 19.2¢ per kWh, that is about $232 a year against about $950 for a resistance tank or tankless in our Chicago example.¹¹

Federal rules are moving the same way. Under the current text of 10 CFR 430.32, electric storage water heaters of 20 to 55 gallons made on or after May 6, 2029 must reach a UEF of 2.30, a level only heat pump models reach; small 20–35 gallon electric tanks keep a resistance-level standard.⁵ Gas tanks stay on the market with a slightly higher minimum.

Upfront cost, lifespan and payback

We found no government source for installed prices; published ranges disagree. A. O. Smith puts tank units at $300–$2,000 and tankless units at $1,000–$3,000 before installation, and says installation costs more for tankless.¹⁶ ABC Plumbing (February 2026) lists $500–$1,200 for a tank and $1,000–$4,250 for a tankless unit, plus $500–$1,000 to install a tank against $1,500–$3,000 for tankless.¹⁷

Consumer Reports tested both types in 2019. At that year’s prices it put the payback for replacing a gas tank with gas tankless at 22½ to 27½ years, and 12 to 20 years for electric. Its engineer concluded that with a typical 12- to 15-year warranty,

it doesn’t make financial sense to replace a tank water heater with a tankless

The same review says the math changes in new construction or a major renovation, when there is no retrofit to pay for.¹⁵ On lifespan, A. O. Smith says a tank typically lasts around a decade and a tankless unit up to 20 years with proper maintenance.¹⁶ FEMP assumes a 13-year life for heat pump water heaters in its cost analysis.⁹ Treat lifespans as manufacturer claims, not measured averages.

The federal tax credit many guides still mention has ended. The IRS says the Energy Efficient Home Improvement Credit, which covered gas tankless and heat pump water heaters, applies to improvements made through December 31, 2025.¹³ Check your utility and state energy office for rebates instead.

When each one makes sense

• Gas tankless fits new construction, tight spaces, or a home replacing a minimum-efficiency gas tank. Size it at your winter rise.
• An ENERGY STAR gas tank gets most of the efficiency for the least change when an old tank fails. Consumer Reports cites an ACEEE estimate that 90 percent of installations happen in an emergency.¹⁵
• A heat pump water heater is the low-cost-to-run choice in an all-electric home, if it has the room: Consumer Reports notes it needs at least 7 feet of headroom.¹⁵
• Electric tankless suits small or point-of-use loads and warm-water regions.
• A tank suits big households running several showers at once in cold-water regions.

Our heat pump vs. furnace running-cost guide uses the same EIA prices if you are weighing gas against electricity for the whole house, and our guide to how heat pumps handle cold weather explains why they lose efficiency as it gets colder.

Installation, maintenance and safety

Switching from a tank to tankless is rarely a straight swap. Consumer Reports notes it can require a plumbing retrofit and an upgrade to the electric service or gas lines.¹⁵ A 27 kW electric unit draws about 113 amps at 240 volts, so an electrician has to confirm your service can carry it. Tankless units also need periodic descaling where water is hard; a plumber quoted by Consumer Reports suggests yearly service in poor-water areas, and Consumer Reports puts a plumber’s visit at $300 or more.¹⁵ An electric water heater is also one of the biggest loads to cover in an outage; the generator size calculator shows how much it adds.

Any gas water heater, tank or tankless, burns fuel in your home. The EPA lists back-drafting from gas water heaters among indoor sources of carbon monoxide and passes on the Consumer Product Safety Commission’s advice: CO alarms on each level outside each sleeping area, and a yearly professional inspection of fuel-burning appliances, water heaters included.¹⁴ Our generator safety guide covers CO alarms in more detail.

Next step

Find your city in Table 2 or measure your winter tap water, then ask each installer for the unit’s rated gpm at a 67°F rise and its UEF. More in our water heater guides and the home energy section; our methodology page explains how we match ZIP codes to NOAA stations.