If your water heater is hot-to-the-touch, it would likely save you on your utility bill to insulate it. Storage tank water heaters installed after 2004 are more likely to have adequate insulation that earlier models.
Installing an insulating jacket is one of the most effective do-it-yourself energy-saving projects, especially if your water heater is in an unheated space. The insulating jacket will reduce standby heat loss by 25–40%, saving 4–9% on your water heating bills. Water heater insulation jackets are widely available for around $10. Always follow directions carefully when installing an insulation jacket and follow the manufacturer's warranty guidelines so as not to void the warranty.
For more information on insulating water heaters, visit the U.S. Department of Energy's Energy Savers tips.