The problem: Heaters that are more than 10 years old tend to be lined with fiberglass insulation, which is less effective at preventing heat loss than the foam used today.
How to spot it: Check the heater's date of manufacture printed on a sticker or metal plate on the side of the tank. Next, touch the tank. If you feel warmth, it's lacking insulation.
How to stop it: Wrap the tank in a precut blanket with an insulating value of at least R-8. Some utilities offer rebates on the $10 to $20 jackets and will even install one for free. To further boost efficiency, fit foam sleeves or insulating tape around pipes. "If your hot-water lines are exposed, that's a lot of energy lost as water travels through them," says Logan Brown of Efficiency Vermont, a nonprofit energy advisory agency. Covering cold lines keeps condensation from beading up on the pipes, helping to prevent mold and mildew in your basement, says Brown.
The payoff: An insulating blanket alone can reduce annual water heating costs by up to 9 percent.