Just like insulating your walls or roof, insulating your hot water tank is an easy and inexpensive way to improve energy efficiency and save you money each month. If your water tank is new, it is likely already insulated. If you have an older hot water tank, check to see if it has insulation with an R-value of at least 24. If not, consider insulating your water tank, which could reduce standby heat losses by 25%–45% and save you about 7%–16% in water heating costs—and should pay for itself in about a year. You can find pre-cut jackets or blankets available from around $20.
If you don't know your water heater tank's R-value, touch it. A tank that is warm to the touch needs additional insulation.