This study investigates the performance of an U-type Downhole Heat Exchanger (DHE) with a new pipe arrangement, where circular fins are fitted around the legs of the DHE.In the present work the heat transfer performance of optimized DHE with circular fins is investigated and compared with that of optimized with bare type DHE. This study numerically models a well with a DHE to determine the heat flow that can be extracted by the DHE. A DHE program is written in BASIC language to investigate the heat transfer rate both for bare and finned type DHEs. In order to verify the accuracy of this program comparisons are made with an experimental work for bare type DHEs. Also a computational fluid dynamics program, FLUENT, is used to study fluid and heat flow processes in the well and DHE systems. The results of the FLUENT program are also used to compare the DHE program. The simulations carried out also enable us to determine the influence of the design parameters of the finned type DHEs. Some examples of optimized geometries are finally shown and discussed.