This article is from the Miscellaneous Macintosh FAQ, by Elliotte Rusty Harold firstname.lastname@example.org with numerous contributions by others.
The best (and in many ways only) means of protecting a
sensitive file from prying eyes is encryption. Many encryption
utilities are available on the net and as part of various payware
products. Most will keep out the casual snooper, but fail miserably
when faced with a knowledgeable and determined hacker. All but one
fail in the face of an attack by an organization with the resources
of a large corporation or government.
For basic protection I recommend using DES encryption. Several
payware and freeware products do this including the above mentioned
Citadel and J. Clarke Stevens' $10 shareware MacEncrypt.
DES is not unbreakable, but the only known attack requires
an investment in the seven figure range. The DES algorithm has
withstood the test of time, and it's unlikely that any "holes"
exist in the algorithm which would allow a cheaper or faster
attack provided reasonable intelligence is used in the choice of
passwords. (i.e., don't use any variant of a proper name or any
word which can be found in a dictionary as a password.)
If you truly are worried about an organization with seven
figure resources trying to break into your files, you need an
encoder that uses a more secure version of DES with a larger
keyspace. Currently I recommend usrEZ's ultraSecure, $140 street.
Its Triple-DES encryption is the most secure protection you can
buy off the shelf, and it also offers file, folder, and hard