1) Log into your Magento admin panel and go to System -> Transactional Emails.
2) On the next page you can edit the raw HTML of the exiting transactional emails or click Add New Template to add a new one.
3) On the next page, under Load Default Template, select the current template name which you want to edit in the Template drop-down. For instance, to create/edit an email your customer receives after creating a new account, select “New Account” in the drop-down.
4) In the Locale drop-down you can select the language of the default template.
5) Click on the Load Template button. This will load the existing template content in the Template Content field where you can change it. In the Template Subject field you can change the subject of the existing template. In the Template Name field you can insert the name of the template. Make necessary changes to the code in the Template Content field. You can check how the emails will look when sent to your customers by clicking the Preview Template button at the top right. Use the Insert Variable button to insert existing variables in the template content field.
6) When you are done, click Save Template.
7) To apply the email template you have just created to your store, go to System->Configuration.
Here you need to browse through the tabs on the left to look for the section relevant to the email template you edited/created: Sales Emails, Customer Configuration, Contact Us etc. Here’s the full list:
Currency Setup (1) > Scheduled Import Settings > Error Email Template
Contacts (1) > Email Options > Email Template
Catalog (2) > Product Alerts > Stock alert Email Template, Product Alerts Run Settings > Error Email Template
Email to a Friend (1) > Email Templates > Select Email Template
Newsletter (3) > Subscription Options > Unsubscription Email Template, Subscription Options > Success Email Template, Subscription Options > Confirmation Email Template,
Customer Configuration (4) > Create New Account Options > Default Welcome Email, Create New Account Options > Confirmation Link Email, Create New Account Options > Welcome Email, Password Options > Forgot Email Template,
Wishlist (1) > Share Options > Email Template
Sales Emails (16) > (two per section)
Checkout (1) > Payment Failed Emails > Payment Failed Template
Admin (1) > Admin User Emails > Forgot Password Email Template
System (1) > Log Cleaning > Error Email Template
In each of these sections, you will need to select the email template you created in the drop down to apply it to your store.
For instance, you have changed/created the new account email and you want to make system use this template instead of the default one. Go to System->Configuration ->Customer Configuration (under CUSTOMERS) -> Create New Account Options.
In the Default Welcome Email drop down select the email template you have created or edited.
Click Save Config to save the changes.