I backup my all my design files and assets locally but I do not have an online back service. So, instead, I made a folder on the server when my website is hosted and I back up my PSDs, Illustrator files, etc, to that folder. Is that a smart thing to do? Would large files like PSDs hinder the performance of my site in any way?
For context, I have a shared hosting plan with godaddy.
No is it is. What is the point of having a backup in the same place where your websites is hosted?? If for some reason the account is blocked or whatever your backups are gone as well. Why dont you back them over to cloud services like Dropbox or Google Drive??
I'd say it isn't perfect but it is better than nothing -- you've got copies in 2 geographically distributed locations at least which is more than many folks can say. One can even argue there are convenience factors for having the files nearby.
Personally, I would look at using a cloud source control provider to handle this -- then you can get backup and versioning in one fell swoop.