Favicons is a must if you are running a professional website and it gives a iconic identity to your website from your browser. You can create favicon either by offline softwares or  online tools. Infact the easiest way to create favicons is by using online tools plus, only it produces a sharp transparent favicon to use in your website, plus you need not worry about experiment image sizes.  I have listed some of the free websites i have seen to create favicon, plus some free softwares.

Dynamic Drive FavIcon Generator

http://tools.dynamicdrive.com/favicon/

DeGraeve Favicon Generator

http://www.degraeve.com/favicon/

Favicon Creator Tool

http://www.favicon.cc/

Favicon Generator

http://favicon-generator.org/

Animated Favicon

http://www.animatedfavicon.com/

Favigen – Favicon Generator

http://favigen.com/

 

Free Softwares to Create Favicon

http://www.gimp.org/

http://www.irfanview.com

Photoshop Plugins for Favicon

To create favicon in photoshop, you will need to download this ICO photoshop plugin. It is free

http://www.telegraphics.com.au/sw/

Further, if you want to design animated favicon in photoshop, here is an excellent tutorial.