What are the available options for password protecting a folder? I'm talking about requiring a password to actually access the folder, not just user access rights. Is the third-party software out there secure and stable? What are the recommendations?
My Lockbox™ is security software enabling you to password protect any folder on your computer.
The protected folder (lockbox) is hidden from any user and application of your system, including Administrator and System itself. It is impossible to access the lockbox, not only from the local computer, but also from the net.
The program is extremely easy to use. You can set the lockbox location and the password during the setup procedure. After the setup is done, lockbox will be hidden and locked until you enter the valid password.
Folder Lock is a Windows program to encrypt or password protect files, folders, removable drives, partitions, USB sticks, etc. In encryption mode it uses the strong 256-bit AES encryption algorithm to encrypt objects on the fly. In lock mode files, folders and drives are not encrypted, but protected with a password.
Folder Lock is shareware ($39.95), try before you buy.
TrueCrypt and FreeOTFE are powerful (and free) alternatives, but it might be an overkill for what you have in mind. They don't encrypt separate folders, but rather an entire filesystem (either a file-based "volume" or a whole disk).
If you have Windows 7 Ultimate or Enterprise, I would suggest encrypting a partition with the built-in-tool BitLocker and storing your folder within that partition. You can also use a USB drive for that purpose.
I somehow don't trust third-party software with something as important as encryption. I usually avoid them and suggest against using them.
PC Security™ is the ultimate in computer security, offering multiple locking systems for the windows environment and internet. Lock files, monitor programs activities, even detect intruders! PC Security offers flexible and complete password protection, "Drag and Drop" support, plus many other handy features. All together, an incredible security package.
Although it doesn't password protect a folder, I think it is a better choice.
The problem with the "password protected folder" paradigm is that such software needs to somehow integrate into Windows Explorer (otherwise the protected folder wouldn't appear as a folder). Besides that, it means that it will only work with Windows Explorer or some built-in file browser.
This imposes some constraints, rendering other programs unable to interact with the protected folder.
Private Disk's approach is fully transparent. Any program will be able to work with the encrypted volume as if it were a regular one.
Unfortunately Windows 7 does not seem to support password protection of folders. This only appears to be possible through Windows authentication, i.e. changing the security permissions of the folder to only be accessible to certain users.
See this article for more information.
Alternatively, you could use a third-party application to protect it. There are plenty of these floating around on Google :)