To save money many people opt for tankless hot water heaters. This can be an excellent option, assuming you know the advantages and disadvantages to adding this type of water heater to your home.

Since heating water can account for more than 20 percent of a household's annual energy expense, it stands to reason some might be looking for alternative sources of heating water. To save on general energy costs, some homeowners add solar panels, others, a gas rather than electric heat system in the home. Smart homeowners will also consider adding a tankless hot water heater to the mix.

On Demand Heat

Unlike conventional hot water heaters, which run on and off throughout the day even when no demand has been made for hot water, tankless hot water heaters (also called instantaneous or demand heaters) run on demand only. Only when a hot water valve is opened will the heater fire up to heat the water.

Available in a variety of sizes, tankless hot water heaters are also available in either electric, gas or propane (LP) versions. Although many homeowners might opt for a whole-house unit, you can purchase them as a backup source of hot water, for a spa, perhaps, or as a booster for washing machines and dishwashers.

Whole House Heat

The largest tankless hot water heaters are meant to provide hot water for a whole house, but as with tanked water heaters, there likely won't be enough hot water if there are multiple, simultaneous demands on the hot water. For instance, there likely wouldn't be enough hot water if the dishwasher, washing machine and shower were all in use at the same time.

You will spend more initially for your tankless hot water heater, but there's an upside to that too. The smallest units, those that deliver 1 to 2 gallons a minute, can start at $200, while the larger units designed for whole house, using and deliver 3 to 5 gallons per minute, can cost from $500 to $1,000.

The upside is a cost savings in energy. Because there is no pilot light burning on standby basis waiting for a hot water demand, there is some energy savings there. In addition, the lifespan of a tankless hot water heater is about 20 years, versus 10 to 15 for tanked heaters.