water heater tank insulation
Unless your water heater's storage tank already has a high R-value of insulation (at least R-24), adding insulation to it can reduce standby heat losses by 25–45%. This will save you around 4–9% in water heating costs.
If you don't know your water heater tank's R-value, touch it. A tank that's warm to the touch needs additional insulation.
Insulating your storage water heater tank is fairly simple and inexpensive, and it will pay for itself in about a year. You can find pre-cut jackets or blankets available from around $10–$20. Choose one with an insulating value of at least R-8. Some utilities sell them at low prices, offer rebates, and even install them at a low or no cost.
Insulating an electric water heater tank
You can probably install an insulating pre-cut jacket or blanket on your electric water heater tank yourself. Read and follow the directions carefully. Leave the thermostat access panel(s) uncovered. Don't set the thermostat above 130°F on electric water heater with an insulating jacket or blanket – the wiring may overheat.
You may want to see the instructions for installing an insulation blanket on an electric water heater.
You also might consider placing a piece of rigid insulation – a bottom board – under the tank of your electric water heater. This will help prevent heat loss into the floor, saving another 4%–9% of water heating energy. It's best done when installing a new water heater.
Insulating a gas water heater tank
The installation of insulating blankets or jackets on gas and oil-fired water heater tanks is more difficult than those for electric water heater tanks. It's best to have a qualified plumbing and heating contractor add the insulation. If you want to install it yourself, read and follow the directions very carefully. Keep the jacket or blanket away from the drain at the bottom and the flue at the top. Make sure the airflow to the burner isn't obstructed. Leave the thermostat uncovered, and don't insulate the top of a gas water heater tank – the insulation is combustible and can interfere with the draft diverter.