Water Heater Operating Costs
Updated February 20, 2026
Water heating is the second-largest energy expense in most homes -- about 18% of your utility bill. The type of heater, fuel source, and your household's hot water usage all affect what you pay every month. Understanding operating costs is where the real money decisions are, because a heater's lifetime operating cost usually exceeds its purchase price.
Overview
Water heating is the second-largest energy expense in most homes -- about 18% of your utility bill. The type of heater, fuel source, and your household's hot water usage all affect what you pay every month. Understanding operating costs is where the real money decisions are, because a heater's lifetime operating cost usually exceeds its purchase price.
Cost Breakdown
Pro Tips
- The EnergyGuide yellow label on every water heater shows estimated annual operating cost. Use this to compare models directly.
- Lowering your thermostat from 140F to 120F cuts operating costs by 6-10% and reduces scalding risk.
- Insulating hot water pipes reduces heat loss during delivery, especially for long runs from the heater to distant fixtures.
- Off-peak electricity rates (time-of-use plans) can dramatically reduce electric and heat pump water heater costs if you time heavy usage.
Mistakes to Avoid
- Choosing a gas tank over electric purely on purchase price without comparing operating costs in your area.
- Ignoring standby heat loss. A tank heater keeps 40-80 gallons hot 24/7, even when you're sleeping or at work.
- Assuming tankless saves everyone money. Small households that use little hot water see the biggest savings; large families may see less.
- Not accounting for fuel cost differences. In areas where electricity is cheap (Pacific Northwest), electric and heat pump options can beat gas.
When to Call a Pro
An energy audit ($100-$300) can identify exactly how much you spend on water heating and model the savings from different heater types. Many utilities offer free or subsidized energy audits.
Bottom Line
Gas tank: $250-$450/year. Electric tank: $400-$550/year. Gas tankless: $150-$300/year. Heat pump: $100-$200/year. Over a 12-15 year lifespan, the operating cost difference between heater types easily exceeds $3,000-$5,000. Choose based on total cost of ownership, not purchase price.