If you have a standard water heater (meaning a tank) you should put the additional insulation on it.

However, $35 sounds high... it should be less than $20. You also want to insulate about 10 feet of the hot and cold pipes nearest the heater. Use the self sealing foam pipe insulation.

If you want to make a slightly bigger project of it, insulate more of the hot water lines. The pipe insulation is cheap and reasonably easy to install if the pipes are accessible.

My tank is NEVER hot, at all. What does wrapping actually do. It appears it is not giving off heat by any means. I would have to guess the cost savings of buying the insulation will never pay itself off in lower energy costs.

If the tank is newer than about 5 years (maybe even more)it is already insulated enough.
If the outer jacket is not warm to the touch you are wasting your money.

"If the tank is newer than about 5 years (maybe even more)it is already insulated enough.
If the outer jacket is not warm to the touch you are wasting your money."

I'm sorry, but neither one of these statements are true.

I did a spot check of manufacturers and new water heaters generally range from 1-2" of foam insulation with an R8-R16 respectively. The 1" was on the lower cost models and the 2" was generally on the higher efficiency and more expensive models. While R16 is reasonable, R8 isn't great and would benefit from additional insulation. A 3" fiberglass blanket will add an R10 and costs $19.95.

You will almost never detect heat loss by putting your hand on the outside jacket. The jacket in that situation would be near the ambient air temperature.

On the other hand, if you install your water heater jacket and then put your hand under the jacket after it has been on for a while, you will definitely feel the warmth that otherwise would have been lost to the surrounding air -- it is surprising how much heat that is.

How much energy you save will vary. It depends on how much insulation you have now, how hot the water is and how cool the surrounding room is. Typically, a water heater jacket will pay for itself in less than a year.

With an investment of $20-25, this is a great "do it yourself" energy saving project. The investment is small and it is an excellent payback period.

Here is a link that might be useful: water heater jacket

The way I do it is take the surface area of the water heater and multiply by 2x the temp difference between the surface temp and the ambient. This gives the loss in BTUH. Now if you have oil heating you determine the amount of fuel you need to make up this loss.
For instance, say you have a tank 2 feet in dia and 4 feet high and its surface temp is say 80 degrees and the ambient temp in the boiler room is 60 deg, then
the surface area is
2*2*3.14/4+2*3.14*4= 28 sq ft
Multiply by 2*(80-60)=40 so the loss is
40*28=1120BTUH
Over a month this comes to
1120*30*24=806,000BTU which comes to about 7 gal of oil usage for this loss. At $3/gal that is $21/month.
This would indicate that insulating in this case would be a good idea.
I did my own and got a temp difference of 8 degrees, so in my case the BTU loss is
28*8*30*24= 161000 BTU or slightly more than 1 gal/month. At $3/gal for oil it costs me about $40/year. I don't think I will bother to go for a jacket-- not just yet even though the recovery would be 6 months.

how do you get the surface temp?

The way I make the decision is much simpler.

Both the International Residential Code(IRC) and the Uniform Plumbing Code(UPC) state that a water heater MUST HAVE a minimum of R-12 insulation and NO Blanket is required.

Ref:
IRC504.2.1en
UPC 150(j)1Ac)

Taking the discussion to the next level.

When a Blanket is installed on an electric water heater the blanket IS NOT to cover the control & heating element service access covers. Covering the service access covers results in trapping extraneous heat around the controls resulting in erratic temperature control and premature component failure.

On gas water heaters an inproperly installed blanket often results in reducing the flow of combustion air causing the incomplete combustion and an excessive amount of carbon monoxide to form.

For this reason many local codes now prohibit insulation blankets.

With all due respect to Lazypup and the code, Lazypup's post is a bunch of FUD.

Clearly there are many heaters being manufactured (and installed) that don't meet the R-12 code requirement. AO Smith Promax line and the State Select line are just a couple of examples (R-8) There are many many more including many of the ones that you would buy at the local home supply store. Feel free to check the spec sheets on the water heaters. Many will either say R-8 or one inch of foam which is equal to R-8.

I would guess that there are millions of residential water heaters in service today that don't meet even the R-12 rating (which is not particularly high) and new ones installed every day.

By the way, water heaters typically work with a 60 degree temp differential (120 water - 60 basement)That is similar to it being 70 degrees inside your home and 10 degrees outside. Now, do you want R-8 wall insulation, R-12 or R-18?

Yes, if you install a blanket improperly you may cause problems for the heater. Duh! If you use shampoo improperly you can hurt you eyes also.

Note too that the wording is that a blanket isn't required if it has an R12. That's not at all the same as saying that a blanket wouldn't save you energy and money.

State Water Heaters
http://www.statewaterheaters.com/lit/spec/res-gas/SRGSS01206.pdf

AO Smith Water Heaters
http://www.hotwater.com/lit/spec/res_gas/ARG-SS01406.pdf

Whirlpool at Lowes
http://www.lowes.com/lowes/lkn?action=productDetail&productId=188421-135-BFG1H5040T3NOV&lpage=none

Jake,

Have you actually tried this experiment you mention, whereby you a) first detected practically no heat loss with bare hand, and then b) put a blanket on and stuck your hand under there later?

Just wondering.

"Have you actually tried this experiment you mention, whereby you a) first detected practically no heat loss with bare hand, and then b) put a blanket on and stuck your hand under there later?"

Yes I did. When I had a tank heater. Just cut a slit in with a utility knife and slip your hand under the blanket. Tape the slice with duct tape when you are done.

The other place that I noticed the same thing was in my attic in the winter after I added more insulation. Just a couple of inches below the top I could feel a lot of warmth.

It was surprising in both cases because I assumed it wouldn't be that noticeable.