Older, natural gas storage-type water heaters can lose a lot of heat through their walls. Wrapping it in an insulating jacket can save energy wasted through excess heat loss, and make your water heater more efficient, but should be left to a professional installer so as not to accidentally cover the top, bottom, thermostat or burner compartment.

You can, however, insulate the hot water pipes to save energy wasted through heat loss, and keep your hot water from cooling off before it reaches the tap.

Skill Level: Basic to Advanced
Insulating blankets or jackets are available at home improvement stores, but it's best to leave installation to a professional.

You can find easy-to-install, insulating pre-slit pipe covers at most home improvement stores.
Cost Range: $20-$40
An insulating jacket is a low-cost way to improve the efficiency of your water heater. It can pay for itself in lower energy bills in the first year. Lengths of insulating pipe covers are very inexpensive. Use them to wrap the first 6 feet of pipes coming from your water heater, or extend the insulation throughout your home's piping system for even more energy savings.
Savings: Reduce standby heat losses by 25%-45%
Insulating your pipes will further reduce heat loss, and may make the temperature reduction on your water heater's thermostat even less noticeable.