How to Tell if Your Water Heater Is Costing You Extra Money

Rising energy costs are hitting individuals and businesses hard, leaving many searching for ways to cut expenses. One common culprit that often goes unnoticed? Your water heater. While it’s easy to overlook, an inefficient or aging water heater could be quietly driving up your energy bills.

This guide will help you identify whether your water heater is costing you more than it should. We’ll cover water heater basics, signs of inefficiency to watch for, how to quantify the financial impact, and actionable steps to save money and energy.

Understanding Water Heaters and Energy Usage Costs

Water heaters are among the largest energy consumers in most homes. Having a clear understanding of how they work and what affects their efficiency can help you better manage your utility bills and reduce unnecessary energy consumption and costs.

Key Components of a Water Heater

A standard water heater includes several key parts that work together to heat and deliver hot water:

• Heating Element: This is the component responsible for heating the water. It may be powered by electricity, natural gas, or propane, depending on the type of heater.

• Thermostat: It monitors the temperature of the water by regulating the heating element.

• Tank: It stores hot water until it is required for use.

• Insulation: It surrounds the tank to reduce heat loss, improving energy efficiency, maintaining water temperature, and reducing energy waste.

Maintaining these components is crucial. Faulty or worn-out components can cost you extra energy money as they force the unit to work harder to maintain temperature.

How Water Heaters Use Energy

Water heaters primarily consume energy to raise the temperature of the water in the tank or flowing through the unit. Several factors influence how much energy your water heater uses:

• Temperature settings: Setting the temperature too high can significantly increase energy use. A range between 120°F and 140°F is generally safe and efficient.

• Heat loss: Poor insulation allows heat to escape, requiring the unit to reheat the water more frequently.

• Usage patterns: The more hot water you use, whether for showers, laundry, or dishwashing, the more energy your water heater will need.

To improve efficiency and lower energy bills, consider adopting smart usage habits, monitoring your water heater performance, and scheduling regular maintenance.

Note: Water heaters typically run on electricity, natural gas, or propane. Their operating efficiency, measured by the Energy Factor (EF) or the updated Uniform Energy Factor (UEF), plays a major role in determining how much it costs to heat your water.

Signs Your Water Heater May Be Costing You Extra Money

An inefficient water heater doesn’t always break down dramatically. More often, it slowly drains your wallet in subtle ways. But identifying these red flags early can save you hundreds annually, not just on energy costs but also by preventing major repairs. One of the best ways to monitor and reduce inefficiencies is by using smart sensors and tools like those from Perceptive Things®, which offer real-time monitoring and instant alerts.

If you're not sure whether your water heater is quietly inflating your utility bill, here are the key signs to watch for, plus technology and actionable steps to save money and energy.

1. Inconsistent Water Temperature

When your water temperature fluctuates unexpectedly or feels lukewarm even when the thermostat is set correctly, it could indicate sediment buildup, a failing heating element, or thermostat issues. This would mean your water heater may be working harder than it should, leading to higher energy bills. Here's how:

• Sediment buildup: Over time, minerals (especially in hard water) settle at the bottom of the tank, forming a layer of sediment. This sediment creates a barrier between the heating element and the water, forcing the unit to use more energy to heat the same amount of water. It can also cause the unit to overheat and shut down prematurely.

• Failing heating element: In electric water heaters, there are typically two heating elements. If one starts to fail, the water may only be partially heated. The remaining working element will have to work longer and harder, increasing energy consumption.

• Thermostat issues: A malfunctioning thermostat can cause the unit to overheat or underheat the water. Overheating wastes energy, while under-heating forces you to use more hot water (or wait longer for it to warm up), again driving up utility costs.

2. Leaks or Moisture

If you notice puddles, damp spots, or visible corrosion around your water heater, it’s a red flag. Even small leaks can have a big impact on your wallet. As the heater struggles to maintain a full tank of hot water due to leakage, it runs more frequently and for longer periods. This not only wears down components faster but also results in increased energy consumption and higher utility bills over time.

Beyond energy costs, leaks can cause water damage to flooring, walls, and nearby belongings, resulting in expensive repairs. Corrosion around the base can also indicate tank deterioration, which may require a full replacement if not addressed.

3. Long Recovery Time

If your water heater takes an unusually long time to reheat water after use, especially in homes with multiple occupants or high water usage, it may struggle to keep up with the demand. This leads to longer heating cycles, consuming more electricity or gas to restore the water to the desired temperature.

4. Higher Energy Bills

Have your utility bills been creeping up even though your household’s water use hasn’t changed? If so, your water heater might be the silent culprit draining your budget. Because water heaters run in the background, they’re often overlooked as a source of rising energy costs. But an inefficient or outdated unit runs longer to heat the water, and this can quietly drive up your bills month after month.

5. Age of Hot Water Heater

Just like any appliance, water heaters become less efficient with age. If your unit is 8 to 12 years old or older, it’s probably costing you more than it should, even if it still seems to be working fine. Just because your heater still runs doesn’t mean it’s economical.

An aging water heater often has outdated insulation, worn heating elements, and internal corrosion that makes it work harder and longer to produce the same amount of hot water. This translates to higher energy bills and more frequent repairs, which can be costly.

6. Strange Noises

A water heater making strange noises could be a sign that the unit is beginning to fail. These sounds may include popping, banging, hissing, or even rumbling. 

If your water heater is making popping, banging, hissing, or rumbling sounds, it’s a sign that something is not quite right, and it could be costing you extra money.

Over time, minerals in the water, especially in areas with hard water, can settle at the bottom of the tank. This sediment layer insulates the water from the heating element, causing it to overheat and make noise as the water tries to rise to the desired temperature. This not only damages your unit but also forces it to use more energy to heat the water and take longer heating cycles, raising your utility bills. This inefficiency translates directly into increased utility bills.

7. Discolored or Rusty Water

If you notice that your hot water is coming out yellow, discolored, or rusty, particularly in older water heaters, it’s a clear sign that something’s wrong inside the tank—and it may cost you more in the long run.

The anode rod inside your water heater is designed to protect the tank from corrosion by attracting minerals and preventing rust. If the rod is depleted or failing, it can no longer do its job, leading to rust formation inside the tank. This not only affects the quality of your water but can also cause your tank to rust and deteriorate over time, leading to additional repair or replacement costs.

A deteriorated unit may also work harder to maintain the temperature, translating to increased energy usage.

8. Frequent Repairs

If you find yourself scheduling frequent repairs or replacing parts of your water heater every few months, it’s a sign that your unit is becoming unreliable and potentially costing you more money than it's worth.

For instance, frequent repairs can indicate that your water heater is constantly breaking down and may not be working at full capacity, forcing it to consume more power to perform basic tasks. This translates into higher energy usage and increased utility bills.

Calculating the Cost Impact of an Inefficient Water Heater

Understanding how much an inefficient water heater is costing you can help you decide when it’s time to repair or replace it. Here’s a step-by-step guide to estimating the financial impact:

Step 1: Determine Your Water Heater’s Energy Usage

Start by finding your water heater’s energy consumption. This is usually measured by its Energy Factor (EF) or Uniform Energy Factor (UEF). These ratings indicate how efficiently the unit converts energy into hot water. The higher the EF or UEF, the more efficient the heater.

Example:  Electric Water Heaters usually consume 3,000 to 5,500 watts of energy when running.

Step 2: Estimate Your Water Heater’s Annual Energy Use

Next, estimate how much energy your water heater uses each year, measured in kilowatt-hours (kWh). Here's how to do it for an electric heater:

Example Calculation:

• Average wattage: 3,500 watts

• Daily usage: 4 hours

• Daily consumption: 3,500 watts × 4 hours = 14,000 watt-hours ÷ 1,000 = 14 kWh/day

• Annual consumption: 14 kWh × 365 days = 5,110 kWh/year

Step 3: Calculate the Annual Cost of Operation

Multiply your water heater’s annual energy consumption by your local electricity rate to find the yearly cost of running it.

In the U.S., the average electricity rate is approximately $0.13 per kWh. So,

5,110 kWh/year × $0.13 = $664.30 per year

Step 4: Factor in Energy Loss from Inefficiency

Older units, poor insulation, or sediment buildup can all cause your water heater to use more energy than necessary. For example, an inefficient unit may consume 20–30% more energy than one that’s working properly.

Let’s assume a 25% increase due to inefficiency. Additional annual energy cost will be:

$664.30 × 0.25 = $166.08 extra per year

Step 5: Evaluate the Long-Term Financial Impact

That extra $166 per year may not seem like much at first, but over time, it adds up. Over just five years, that’s more than $830 in unnecessary costs with an inefficient water heater..

By upgrading to a more efficient water heater or addressing existing issues, you can reduce these expenses significantly, improve your overall energy efficiency, and save costs.

Protect Your Budget with a More Efficient Water Heater 

Addressing water heater inefficiencies is one of the easiest ways to get a grip on rising energy costs. By identifying the signs of trouble early, calculating the financial impact, and taking steps to improve efficiency or upgrade to a more effective model, you can save money and reduce energy waste. 

Don’t wait for high energy bills to drain your budget. Look into your water heater’s performance today and explore your options for better efficiency.

If you’re unsure where to start, consider contacting a professional plumber or energy specialist to assess your current system. Investing in your home’s long-term efficiency not only saves money but also offers peace of mind.