If you are not encrypting your hard disk contents, your files have NO protection outside of the operating system. It’s as easy as booting from a CD and copying your files directly from the hard drive to steal your personal data. Your files are NOT secure.
If you are ecrypting files on your Windows NTFS partition using the built-in encrypted file system (EFS), your files are NOT secure.
If you are on a network domain at work, do you know that by default your system administrator can decrypt your EFS encryped files? The administrator has a shared key. In fact, your administrator can even disable the feature, not allowing you to encrypt files at all.
EFS is only as secure as your login password. If someone finds out what your login password is, they can login as you and access your encrypted files.
If you leave your computer turned on and logged in, there is software that can steal your session key and decrypt your files.
Basically, EFS is very breakable. Do not rely on EFS for security.
Instead, you should use a robust On The Fly Encryption (OTFE) system that includes session timeouts.
On The Fly Encryption works similar to EFS, except that you can mount OTFE file systems as partitions (the partitions appear as drive letters on your system). When you want to access files stored on the OTFE mount, you simply start a session by entering your secure password.
The files are decrypted and encrypted in real time. State of the art OTFE systems will automatically expire your session after a specified time period. The OTFE partition is stored as a single file on your hard drive and lacks any file signatures, so nothing can be guessed about the encrypted partition.
TrueCrypt is the leading open source OTFE system. TrueCrypt allows you to set automatic session timeouts–the shorter the better, and TrueCrypt uses AES and other very strong ciphers for encryption.
TrueCrypt also blocks write access to unencrypted file systems while your session is open to avoid you accidentally writing your secure data to the unencrypted system. TrueCrypt even includes a feature to disable Windows paging, preventing Windows from using the hard disk as virtual memory, which could lead to unencrypted data being stored in the system cache.
TrueCrypt is cross platform and available on Linux and Windows, with precompiled binaries available for Windows.
If you wish to keep your data away from pyring eyes, use OTFE for secure storage of files.