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I have an external drive that already has some stuff in it. It also has a lot of space left (twice as much as the data currently in use on my local drive), which is why I'm thinking about turning on Time Machine (TM).

My question is: If I choose to encrypt my TM backups, and when I turn on TM, will I retain and have access to the other stuff on the external drive?

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I just encrypt the whole drive and use that for TM. And I also use the same drive for CCC and general storage. So, yes, you can use it for storage too if you follow my approach. Is there another way to do encrypted TM backups? Sparsefile or whatever it's called? –  skub Jan 21 '12 at 0:29
    
@skub I was specifically referring to the “Encrypt backup disk” checkbox that appears under Preferences -> Time Machine -> Select Disk. Note that I have FileVault 2 turned on my local drive. –  Enchilada Jan 21 '12 at 1:21

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That's going to encrypt the whole disk, not just make an encrypted sparse bundle file. It's definitely the way to go if you don't need share the drive with a Windows or Linux OS. You will certainly be able to use it for other stuff along with your TM stuff. You can use Carbon Copy Cloner on there too.

There is one caveat, I'm almost positive TM will want to format the drive if you want to encrypt it. So, you'll have to move your data off to a temporary spot first and then copy it back.

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It will encrypt the disk in place. No data will be harmed unless something goes wrong. It works the same way with full disk encryption of the system. –  Daniel Beck Jan 22 '12 at 20:39

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