If your water heater was manufactured before 2004, consider wrapping it with an insulating blanket designed specifically for this purpose. Newer water heaters don't need added insulation because the federal requirement for tank insulation was updated and increased in 2004. Most water heaters manufactured before then have less insulation which results in standby heat loss and wasted energy.
Water heating can account for as much as 17% of an average home's annual energy use so installing an insulating blanket can pay off quickly. Some manufacturers have specific guidelines for installing an insulating blanket, so be sure to check the owners manual. Also please note on gas units, areas not to cover include warning labels, the top of the unit, the pressure relief valve, the control panel, and any bottom air inlets.
And the last thought today on water heaters... it is a good idea to drain off a bucket of hot water from your water heater annually to remove sediment that will interfere with the heater's long-term use and efficiency. Speaking from recent experience at home, this was something we did not know should be done as preventative maintenance so we had to replace our water heater after we found years of sediment effecting our hot water pressure and ultimately damaging the unit.