I use a third hard drive on the server for backup. I have two 80GB hard drives running Raid 1 and a 250GB hard drive that I use for backup. Having a second or third hard drive on your server is the most cost effective method for backing up your server. But its not the safest, if some hacks your server they could destroy your backup. Or worse yet if mother nature or a fire destroys your data center your backups are lost forever. While these cases are extreme, it could happen. So I guess it depends on what your backing up. For most people backing up to a second or third hard drive on the server will be more than enough. But if your data is mission critical you should seek a off site back up. All though expensive Us Data Trust offers such a service.
http://www.usdatatrust.com/landing/online-backup.asp
