I have an external backup drive connected to my production pc. I use a free program called FBackup and it backs up up my jobs everyday at 5pm.
I keep an updated (around every 4 months or so) "System Image" file created from Windows on that drive as well.
Is the Windows System Image enough protection should a hard drive failure occur?
This is for Windows 7 and i also do the same with my Windows 8.1 laptop.
Typically, I like to have 3 images.
1. Fresh install with no apps
2. Fresh install with all apps and their respective settings
3. Ongoing backup image taken at regular intervals.
1 and 2 are kept in locations never to be touched with the backup program again except to deploy just in case something happens to #3.
I don't advise storing backups on external USB drives. In my mind (so take it for what it's worth), they aren't meant for long term storage. I have had far more failures with external drives compared to drives that have firmware for a NAS setup for instance. Don't get me wrong, I've had external drives last quite a while, but I have had far more failures with external drives compared to drives in a NAS system.
If doing external, I would keep the backup files on more then one, just in case one has a failure, you have a backup of that backup file. This is where a RAID setup can come in handy as well with a NAS device.
This is how I approach backups, this is by no means the only method (may not even be the best method), just the way that I approach it. Nothing more.