A heat pump water heater uses about a third of the electricity of a standard electric model, saving many households more than $300 a year.
Check that you have enough space, since the unit needs airflow and works best in an unfinished basement or garage.
Look for rebates and incentives, which can knock hundreds off the upfront price in many areas.
Set the temperature to 120 degrees Fahrenheit, which is hot enough for most uses without wasting energy.
The upgrade pays for itself several times over across its lifespan.