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With Windows XP Pro and Windows Vista, Microsoft offers a nifty feature to encrypt files or folders using Encrypting File System (EFS).
Here's how to encrypt your files or folders. When you are logged on to your computer, you'll be able to read them. Anyone who tries to use your computer without your logon will not be able to read them.
To begin, click Start, then All Programs, then Accessories, then click Windows Explorer.
Right click on the folder and select Properties.
On the General tab, click on Advanced.
PLEASE NOTE: Files or folders that are compressed cannot be encrypted. If you encrypt a compressed file or folder, that file or folder will be uncompressed.
Select Encrypt the file and the parent folder in the Encryption Warning dialog window.
All files created in the encrypted folder will now be automatically encrypted.
Be sure to click OK when you're done.
Simply click the Apply changes to this folder, subfolders and files checkbox and click OK.
Click Start, then All Programs then Accessories and select Windows Explorer.
Find the file or folder that you want have encrypted, right click and select Properties.
From the General tab, select Advanced.
Be sure to uncheck the Encrypt contents to secure data check box.
When you decrypt a folder, you must decide whether to decrypt the folder only or to decrypt the folder and all files and subfolders contained in the folder.
If you choose to decrypt the folder only, the files and subfolders within the folder remain encrypted. However, when you add new files and subfolders to the folder, they will not be automatically encrypted.