Tank-type water heaters, or storage water heaters, are the most common type used in the U.S., but they're not necessarily the best. They use electric resistance elements, gas or oil as the heat source. An electric tank-type water heater doesn't have a burner or flue like gas and oil versions, and costs the most to operate.
They come in different sizes, but a 40- to 80-gallon tank is adequate for most households. New ENERGY STAR® tank-type water heaters are insulated to improve energy efficiency by reducing standby heat loss.
Even with ample insulation, efficiency is limited. When the water in the tank eventually cools to a preset temperature, it must be reheated. Standby heat loss causes this cycle to repeat 24/7, whether you're using hot water or not. If your water heater feels warm to the touch, it's losing more energy and costing more money than it should. When the burner shuts off, the heat from the water is released up the flue, so exterior tank insulation can't fix the problem of lost heat. If you're interested in saving energy costs by eliminating standby heat loss you may want a tankless water heater installed.