Purchasing a high-efficiency electric water heater can be a wise energy investment, for an all electric home with high hot water use. Tank or storage hot water heaters are "stand-by systems" - that is, water is kept hot and stored for use whenever it is needed. Because the water in the tank is kept hot, some of the heat is lost to the air around the tank. These "standby losses" can be reduced by insulating the tank. In the past, external water heater insulation blankets were widely recommended to help reduce standby losses and overall operating costs. Newer water heaters have higher levels of insulation, making additional insulation unnecessary.

High-efficiency electric water heaters usually incorporate a layer of foam insulation, often as high as R-19, between the tank itself and the exterior of the water heater.

Electric resistance heating elements in the tank transfer virtually 100% of their energy to the surrounding water as heat. There are higher-efficiency heat pump water heaters which operate at an efficiency of over 100%, and sometimes as high as 200%. They transfer heat from the surrounding air to the water in the tank. Heat pump water heaters are an excellent option for heating a swimming pool or spa.

The Federal Trade Commission (FTC) requires that all storage type water heaters be labeled with an "EnergyGuide" label. This label shows, based on the national average cost of electricity, the estimated annual operating costs for that particular water heater. The label also shows how the operating costs for that particular water heater compare with all other comparable models. The most efficient new electric storage water heaters have an Energy Factor of at least .97.

The life of an electric water heater will vary depending on care and maintenance of the unit and factors like mineral content of the water. On average, most water heaters will need to be replaced after approximately 13 years.

When the time comes to replace your electric water heater, a new high-efficiency model can be a worthwhile investment in energy savings. Next to heating or cooling, water heating is usually the second largest energy expense in the home.

High-efficiency electric water heaters have higher levels of foam insulation, some as high as R-19. This reduces the "standby loss" or the heat that is lost from the tank 24 hours a day. This extra insulation is especially helpful if your water heater is located in an unconditioned area.

All water heaters should be installed according to the manufacturer's specifications.