Tankless water heaters only heat water as needed, or "on demand," so no hot water is stored in a tank, and save energy by eliminating energy lost during standby operation, or when hot water is just sitting in the tank. When hot water is needed, the gas burner turns on and cold water enters the heater, where it encircles the heat exchanger and then exits the heater at the set temperature point.

Tankless hot water heaters may not make sense for a large family or a household with a large hot water demand. Tankless water heaters are good for households whose hot water uses are far apart, like where the master bedroom is far away from the kitchen and laundry room. They are also useful in households that are often away, like for vacation homes. These energy efficient heaters are becoming very popular in new construction and major remodels and they also take up less space.

Visit ENERGY STAR to learn more about Tankless Water Heaters.