A water heater converts energy to heat and transfers that warmth to water. It's connected to a cold water supply pipe and has an outgoing hot water pipe, or system of pipes, that supplies heated water to one or more taps and appliances.

A conventional water heater stores heated water in its tank. The less common tankless water heater doesn't store water; instead, it routes heated water straight to taps or appliances. Most water heaters are fueled by natural gas, although propane and electric water heaters are not unusual. Where natural gas is available, it is a much less expensive fuel than electricity.

A tankless water heater circulates water through a series of burners or electric coils when a hot water faucet or appliance is turned on. Because the water heater doesn't store hot water, it costs less to operate and doesn't run out of hot water unless the flow exceeds its heating ability. If two people take separate showers at the same time, a tankless unit may not be able to handle the flow.

The number of bathrooms in the house can typically measure the needed tank size, though some circumstances can skew these standards a laundry-heavy family with small children or a house with an especially large bathtub, for example.

Minimum size unit for a 1-bathroom house should be 30 or 40 gallons, in either gas or electric. For a 1 1/2-bath house, 40 gallons is minimum. For a 2- to 3 1/2-bath house, choose a 50-gallon gas heater or a 66- to 80-gallon electric one (because electric water heaters take longer to heat water, large tanks should be bigger than their gas-fired counterparts). For a large, 4-bath house or a home with an extra-large bathtub get a 75-gallon gas heater or a 120-gallon electric heater.