A water heater is typically the third largest consumer of energy in the home, accounting for about 13 percent of the gas, electric, or oil bill.

New hot water heaters, particularly the on-demand type, are much more efficient than the older tank types - and even those have improved greatly in recent years, but hot water heaters last 10 to 15 years so you may still get to spend a lot more expensive time with yours.

According to the U.S. Department of Energy, if you aren't in the market to buy a new, more efficient heater, there are three ways to cut the expense of operating the current one; use less water, turn down the heater thermostat, or insulate the tank and pipes.

These are cheap and mostly painless and only require a few minutes effort or a very minor lifestyle change.

Use less hot water.

  • Whenever possible wash clothes in cold water.  This is not as effective as hot water in killing germs, but the only way to get rid of the really bad stuff anyway is with bleach which raises a whole bunch of other issues.
  • Take showers rather than baths and make them quick.  Ten minutes is a frequent recommendation but you can get plenty clean in five.
  • Install low-flow aerating faucet and shower heads.  These are cheap to purchase and take minutes to install.  They reduce water usage by two to four gallons a minute and increase water pressure to 30 pounds per square inch.
  • Run the dishwasher only when full and don't use the rinse and hold cycle.
  • Repair leaky faucets promptly
  • If you pre-rinse dishes before putting in the dishwasher do it in cold water.

Turn down the heater thermostat.  Many hot water heaters come with a pre-set temperature higher than needed.  Not only does this waste energy but the super-hot water is a safety issue particularly if there are young children or elderly in the home.  Turn the thermostat down to 140 degrees if you use a dishwasher, 120 degrees if you don't.

Insulate the heater and pipes.  Water heater "blankets" are available at hardware and home improvement stores (under $25) and are a cinch to install.  Follow manufacturers directions, there are slight differences in installing on electric versus gas or oil heaters but never cover the thermostat on either kind.

Insulate the pipes, both those running into the heater (cold) and out (hot).  DOE recommends doing this for the six feet closest to the heater.  However, if your pipes run through an unheated space such as a garage, insulate the entire exposed run.  There are several types of insulation available, fiberglass wrap ($3.25 for 25 feet), polyethylene (package of four 3-foot lengths) and pre-formed foam (6-foot lengths from $0.98).  We have found the last of these on the cheap at retail overstock or salvage stores.