A tankless coil water heater produces hot water on demand without using a storage tank. When a hot water faucet is turned on, water heats as it moves through a coil or heat exchanger built into a furnace or boiler. These systems tend to be most efficient in colder months when the heating system runs often, but they can be less practical for homes in warmer climates.

Indirect water heaters are generally a more efficient option, even though they use a storage tank. They rely on the home’s furnace or boiler to heat a fluid that circulates through a heat exchanger inside the tank. The stored heat allows the furnace to cycle less frequently, reducing energy use. When paired with a high-efficiency boiler and a well-insulated tank, an indirect water heater can be one of the most cost-effective ways to supply hot water, especially when the boiler is set to operate in a cold-start configuration.