Find water heater insulating blankets at The Home Depot, Ace Hardware and Amazon. As of 2015, insulating blankets cost less than $30 and provide savings of $25 to $40 annually on energy costs. Installing the insulating blanket takes about 90 minutes.
New water heaters already include the recommended R-24 value insulation as of 2015 and do not require an additional insulation blanket. However, older tanks have less insulation, increasing the fuel required to keep water in the tank at the set temperature. Adding the blanket to an older tank reduces the heat loss, according to the U.S. Department of Energy. If the outer metal jacket of the water heater is warm to the touch, adding more insulation is beneficial.
Many of utility providers offer rebates or discounted kits to customers. Installing the kit reduces standby heat loss by 25 to 40 percent. The reduction in water heating costs is 4 to 9 percent.
Check for leaks before buying the kit as an old tank that leaks requires replacement. Turn an electric water heater off at the circuit breaker panel or a gas unit to the pilot setting before beginning the work. Before installing an insulating blanket on an electric water heater, check the thermostat setting and ensure it is below 130 degrees Fahrenheit to reduce the risk of fire.