The domestic electrical hot water cylinder used in this paper incorporates encapsulated phase change material (PCM) placed in 57 vertical pipes. The use of PCM increases the thermal energy storage capacity of the cylinder and allows the use of low cost electricity during low peak periods. The operational mode of the system is based on heating the water and melting the phase change material during night. After first discharge of hot water, the phase change material will transfer heat to the recently introduced cold water and increase its temperature without using electricity. The already measured experimental data prove the efficiency of the use of PCM in these systems and are used to validate a developed code for numerical simulation using finite volume method. Following model validation a parametrical study was carried out to optimize the PCM distribution inside the hot water cylinder.