If you're looking for an even more energy-efficient way to heat water, consider installing tankless water heaters, which use a heat exchanger or coil installed in a furnace or boiler to heat water directly. According to the U.S. Department of Energy, water heating accounts for about 14 percent of the average U.S. household energy budget. A lot of that money goes down the drain in the form of standby losses -- energy lost from warm water sitting unused in a tank. Tankless water heaters can save homeowners a lot of that money, since they provide hot water at a preset temperature only when needed, eliminating standby loss.

While tankless water heaters may cost more at first, they pay for themselves very quickly.
Tankless water heaters range in price from $200 for a small under-sink unit up to $1,200 for a gas-fired unit that can deliver five gallons of hot water per minute. That is considerably more hot water than typical tank systems; however, many of the new high-efficiency tank units cost nearly as much as the high-end tankless ones.

Installation costs for a tankless water heater can run from two to four times higher than tank types, too. Installation is easiest in new construction; in retrofit applications, re-sizing of gas supply lines or extra wiring may be needed.

According to the NAHB Research Center, electric tankless water heaters generally cost 10 percent to 20 percent less to operate per year than conventional tank-type heaters, while gas tankless units cost 20 percent to 40 percent less per year to operate. The expected life of tankless units is also greater: 20 years as opposed to 10 to 15 years for tank-type units.