Selecting the right water heater for your home is a serious commitment- one that could last up to 20 years.  Before you take the plunge, here's some extra information to help you decide between a conventional tank or a tankless water heater.

The average cost of an electric conventional tank water heater ranges from about $300 for a 40-gallon heater to about $600 for an 80-gallon heater.  The average cost of a natural gas tank water heater is about $375 for a 30-gallon heater to $600 for a 65-gallon heater.  Remember: Gas heaters are less efficient, but heat water more quickly, so you can get by with a smaller tank.

Installation charges for tank heaters can vary quite a bit, but figure that it will cost around $200 - $400 dollars to install a new unit (less if you're replacing an existing system; more to switch from gas to electric or vice-versa).  Warranty coverage for tank water heaters ranges from six years for inexpensive models to 10 years for higher quality ones.  Finally, the life span of a tank heater seldom exceeds 12 years.

Tankless water heaters range in price from $200 for a small under-sink unit up to $1200 for a unit that delivers 7.4 gallons per minute with a decent temperature rise. Typically, the more hot water the unit produces, the more it will cost.

Installation of tankless heaters can cost 2 to 4 times more than installing a tank heater.  Electric tankless heaters usually require additional wiring and possibly a higher capacity main electric panel.  Gas tankless heaters usually require a direct vent to bring in fresh air for combustion and to vent the flue gas through a sidewall.  Installation for either type is easier with new construction since you can plan for the proper wiring or venting and determine where to position the units.  If you want to replace a tank water heater with a tankless unit, the installation costs can be significantly higher than installing another tank heater.  

Most tankless units have about a 20-year lifespan since the units aren't subject to corrosion and most brands offer a 12-year warranty.

Let's run some very general numbers for comparison's sake.  (These estimates are not model or brand specific and do not include tax incentives or rebates.)

Assume you need enough hot water to serve a 3 bathroom home:

Natural gas conventional tank heater (50-gallon capacity)
$500 unit price (9-year warranty)
$250 installation
$315/ year operating cost
Total = $390/year (replaced after 10 years)

Electric tank heater (66-gallon capacity)
$570 unit price (12-year warranty)
$250 installation
$490/ year operating cost
total = $572/year (replaced after 10 years)

Natural gas tankless heater (7.4 gpm @ 45° rise)
$1200 unit price (12-year warranty)
$500 installation
$260/ year operating cost
total = $430/year for 10 years; $345/year for 20 years

Electric tankless heater (7.4 gpm @ 33° rise)
$800 unit price (12-year warranty)
$500 installation
$460/ year operating cost
total = $598/year for 10 years; $525/year for 20 years

Since tankless water heaters last twice as long as a tank water heater, the savings can really add up in the long term.  As always, check the Energy Guide labels and look for Energy Star appliances.  More efficient water heaters mean more money in your pocket and a healthier planet, too.  Go green, get green.