Blog27 Mar 2025

Comparing Tankless and Tank Hot Water Systems

Having a reliable and efficient hot water system is essential for every household. Whether you’re taking a shower, washing dishes, or doing laundry, you depend on a steady supply of hot water daily. However, choosing the right system isn’t always straightforward. Homeowners often weigh factors such as cost, energy efficiency, available space, and long-term durability before making a decision.

The two most common options are tankless water heaters and storage tank systems. Storage tank water heaters keep a reserve of heated water ready for use, while tankless water heaters heat water on demand without the need for a storage tank. Each system has advantages and considerations, from installation costs to performance and maintenance needs.

This guide will explain the key differences between storage tanks and tankless water heaters, helping you determine which best suits your home’s needs. By understanding their pros and cons, you can make an informed choice that balances comfort, energy efficiency, and cost-effectiveness in the long run.

How Traditional Tank Hot Water Systems Work

Tank Water Heater

Traditional storage tank water heaters operate by continuously heating a set amount of water in an insulated storage tank. These systems rely on a gas burner or an electric heating element to maintain the water at a preset temperature, ensuring hot water is available when needed.

The key components of a storage tank system include:

Storage tank: Holds a specific volume of water, typically ranging from 50 to 400 litres.
The heating element or gas burner: Warms the water to the desired temperature.
Thermostat: Monitors and controls the water temperature to prevent overheating or excessive cooling.

Once hot water is used, cold water enters the tank to replace it, and the heating cycle begins again. However, the system maintains heated water even when not in use, so it can lead to energy loss, making it less energy-efficient than tankless water heaters.

A well-maintained storage tank system typically lasts 10 to 15 years. Regular maintenance, such as flushing the tank to remove sediment build-up and inspecting the anode rod for corrosion, can help extend its lifespan and ensure reliable performance.

How Tankless Hot Water Systems Work

Tankless Water Heater

Unlike traditional hot water systems that store and reheat water, tankless hot water systems heat water only when needed. These energy-efficient systems operate on demand, eliminating the need for a storage tank and reducing standby energy loss.

When a tap is turned on, cold water flows through the system and passes over a heat exchanger, quickly heated by either a gas burner or an electric element. A flow sensor detects water movement and activates the heating process, ensuring a continuous and efficient hot water supply.

Key components of tankless systems include:

Heat exchanger: Transfers heat to the water as it flows through the unit.
Flow sensor: Detects water demand and triggers heating.
Burner or electric element: Provides the necessary heat for water temperature regulation.

Because tankless heaters only operate when needed, they consume less energy than traditional hot water systems. While tankless models typically have a higher initial cost, they can last 20 years or more with proper maintenance. Routine descaling and occasional filter cleaning help ensure efficiency and extend the lifespan of these energy-efficient units.

Comparing Energy Efficiency: Which Hot Water System Saves More?

Choosing the right system affects running costs and energy consumption. Understanding how each option works helps homeowners decide which system is more energy efficient.

How Tank Systems Continuously Heat Water, Leading to Higher Energy Use

Traditional hot water supply systems store heated water in a tank, keeping it warm even when not used. The system reheats the water throughout the day, using extra electricity or gas. Heat loss occurs as stored hot water cools down over time, making the system less energy efficient.

Tankless Systems Heat Water Only When Needed, Reducing Wastage

Comparing tankless and tank hot water systems shows continuous flow hot water units avoid standby heat loss. Cold water enters the unit and passes through a continuous flow heater, warming up instantly. Demand hot water systems only use energy when a tap is turned on, lowering wastage.

Energy Savings in the Long Term for Tankless Systems

While electric hot water systems with a tank may cost less upfront, they often result in higher power bills over time. Tankless systems have a higher initial cost, but their lower energy use makes them a cost-effective option in the long run.

Impact on Electricity and Gas Bills

Heating water is one of the biggest energy expenses in a home. Tankless heaters reduce overall electricity or gas consumption. The advantages and disadvantages of each system depend on household size and water usage.

Installation and Space Considerations for Energy-Efficient Homes

The right hot water system depends on available space and installation costs. Some systems require more room, while others need plumbing and electrical modifications.

Tank Systems Require Significant Space for Installation

Storage water heaters have a large insulated tank that holds heated water.
These units take up floor space and are often installed in garages, laundries, or outdoor areas.
Traditional water heaters continuously heat water, leading to higher energy consumption.
Proper ventilation may be needed for gas water heaters to ensure safe operation.

Tankless Units Are Compact and Can Be Wall-Mounted

Storage tank heaters require space, while tankless units are small and mounted on walls.
Tankless systems do not store hot water, freeing up valuable floor space.
It is ideal for apartments or homes with limited room for a storage tank.
It can be installed indoors or outdoors, depending on the model.

Complexity of Installation

Storage water heaters are easier to install, with lower installation costs.
Electric water heaters and gas water heaters with tanks require minimal changes to plumbing.
Tankless models often need modifications:

Gas water heaters may require upgraded gas lines to handle demand.
Electric water heaters may need additional wiring or a stronger power source for the heating element.
Plumbing adjustments are often necessary for proper water flow.

These modifications partly contribute to the higher initial cost of tankless units, but they can also reduce energy consumption over time.

Upfront Costs vs Long-Term Savings

Choosing between a traditional tank water heater and a tankless system involves balancing upfront expenses with long-term savings. While tanks are more affordable initially, tankless models offer potential cost benefits over time.

Initial Investment Comparison

Storage water heaters are typically the lower-cost option for installation.
In Australia, gas hot water storage tanks with capacities between 135L and 360L range from $1,000 to $1,475.
Standard electric hot water systems cost around $1,500, depending on the model.
Instantaneous gas hot water systems (tankless) start at $1,000 to $1,575, but installation costs may be higher due to additional plumbing or electrical work.

Energy Efficiency and Operational Savings

Tankless systems are significantly more energy efficient than traditional tanks.
Tankless water heaters can be 24% to 34% more efficient for households using approximately 150L of hot water daily.
Water heating is about 30% of the average Australian household’s energy consumption, so greater efficiency leads to long-term savings on electricity or gas bills.

Government Incentives

Homeowners in Australia can access government rebates for upgrading to energy-efficient hot water systems.
In Victoria, eligible households can receive up to $1,000 for heat pumps or solar hot water systems.
These incentives help reduce the price gap between traditional and tankless models, making high-efficiency systems more affordable.

Return on Investment Analysis

Tankless systems have a lifespan of approximately 25 years, compared to 15 years for storage water heaters. Although the higher initial cost of tankless units may not suit every household, their energy efficiency and durability provide savings over time.
Factoring in lower running costs, longer lifespan, and available rebates, many households see a positive return on investment within 5 to 10 years, especially if they have consistent hot water usage.

Durability and Maintenance: Which Hot Water System Lasts Longer?

The lifespan of a hot water system depends on the type and how well it is maintained. Tankless water heaters generally last longer than storage water heaters, but both require regular upkeep to ensure efficiency and reliability.

Lifespan Comparison

Storage water heaters typically last 10 to 15 years.
Tankless systems can last 20 to 25 years with proper maintenance.

Common Maintenance Tasks for Both Systems

Tank Water Heaters

Flushing the tank yearly to remove sediment build-up.
Checking and replacing the anode rod to prevent rust.

Tankless Water Heaters

Descaling and flushing the unit to prevent mineral build-up.
Cleaning the inlet filter to maintain water flow.

Regular servicing extends the life of both systems and prevents costly repairs. While tankless systems have a higher initial cost, their longer lifespan makes them a durable and cost-effective option in the long run.

Performance and Hot Water Supply: Continuous Flow vs Storage Tanks

The right hot water system depends on the household’s hot water needs. Storage tank systems and tankless systems perform differently when handling daily demands.

Tank Systems Provide a Limited Amount of Hot Water at a Time

Storage tank water heaters hold a set amount of hot water, usually between 50L and 400L.
Once the tank is emptied, cold water refills it, and the heating element takes time to reheat.
Large households may run out of hot water during peak times, especially with multiple showers or appliances running.

Tankless Systems Offer Continuous Hot Water but May Struggle with Multiple Uses

Continuous flow systems heat water on demand, so they never run out.
However, using multiple taps or appliances at once can reduce water pressure and flow rate.

Best Choice for Large Households vs Small Households

Large families may prefer a storage tank for consistent supply.
Smaller households or homes with lower hot water supply need to benefit from continuous flow hot water systems.

Factors Influencing Water Pressure and Flow Rate

Tankless systems depend on gas or electrical capacity for heating speed.
Storage tanks provide stable pressure but take time to refill after heavy use.

Which Hot Water System is Best for Your Home?

Choosing the right hot water heater depends on your budget, household size, space, and energy preferences. Each system has advantages that suit different needs.

Factors to Consider

Budget

Traditional tank heaters have lower upfront costs but lead to standby heat loss, increasing energy bills.
Continuous flow hot water systems cost more initially but reduce standby energy losses, making them more cost-effective over time.

Household Size and Water Usage

Large families benefit from a hot water storage tank, ensuring a steady supply.
Smaller households may prefer an instant hot water system for efficiency and space savings.

Space Availability

Gas systems with hot water storage tanks need dedicated space.
Continuous flow systems are compact and wall-mounted, freeing up space.

Energy Efficiency Preferences

Electric hot water systems and natural gas models vary in running costs.
Solar hot water systems reduce energy costs but have higher installation expenses.

Ideal Scenarios for Each System

Homes with high hot water demand may prefer traditional tank heaters.
Those wanting continuous hot water should consider continuous-flow hot water systems with a heat exchanger.

For personalised advice, compare options based on energy bills, usage, and long-term savings.

Find the Best Hot Water Solution with Silver Drains

Choosing the right hot water system depends on energy efficiency, household size, and budget. Traditional tank heaters offer a reliable hot water supply, while continuous flow systems provide instant hot water without standby heat loss. Professional installation is essential to ensure efficiency, safety, and long-term savings.

Silver Drains specialises in gas systems, electric hot water systems, and continuous hot water systems, offering expert advice tailored to your needs. For personalised guidance and professional installation, call us today and let our team help you find the best hot water heater for your home.