How can you encrypt files on a Windows XP system?
Windows XP Encryption
Microsoft Windows XP Pro has built-in encryption as part of the file system (EFS). More info can be found here on how to encrypt files:http://www.iopus.com/guides/efs.htm The important part is to backup the encryption key to a floppy disk or other medium because if the Windows OS becomes unbootable or damaged, the data may be lost.
The Windows XP encryption does not protect the files if the specific user is logged in at the moment. It only prevents unauthorized access from other profiles or if the hard drive is pulled and plugged into another machine.
A simple way to encrypt files is use a compression tool such as WinRar
(http://rarlab.com/download.htm) and compress the files in RAR format with a password. Zip compression also supports password encryption, but it is more susceptible to dictionary attacks on the password. The upside to Zip compression is that it is more compatible without installing additional software (XP and OS X have Zip decompression built-in)