Note - The article is for Excel 2010 / 2013 versions and doesn't cover any version prior to Excel 2010.

Excel 2010 / 2013 uses default 128 bit AES encryption which is considered highly secured. If you are interested in knowing all things about Excel security, I will recommend following MS article -

http://technet.microsoft.com/en-us/library/dn194021%28v=office.15%29.aspx

---- Update on 27-Jun-15 - Following is a very good article which contains some useful info on Excel security -

http://www.thespreadsheetguru.com/blog/2014/8/20/understanding-excels-password-security-methodology ----

Anyway, coming back to topic, there are 4 ways to encrypt Excel Workbook (Not counting VBA to do this which is not a safe way to encrypt).

1. Way 1 - Encrypt Document Button - This is recommended if you encrypt your workbook very often.

a) Right click on Quick Access Toolbar and choose Customize Quick Access Toolbar (QAT). If you want to add this button in Ribbon, you should choose Customize the Ribbon. In my view, putting a button on QAT is very convenient as this becomes accessible anywhere irrespective of which tab you are in. (Customize Ribbon and QAT can be accessed through File > Options also)
b) Choose All Commands in Choose commands from box.
c) Choose Encrypt Document and Add it to QAT.

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d) Now Encrypt Document button becomes available in QAT which you can press anytime to encrypt your document.

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e) When this button is pressed, the Encrypt Document window appears which asks for password. After inputting the password here and pressing OK, this will ask for confirmation of the password.

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RECOMMENDATION for Passwords - For your password, it is recommended that you should not use only alphabets and all lower case alphabets. For a very secured password, I would recommend following

- Minimum password length should be 8. Longer the better. Not so long which you forget.
- Don't use a full dictionary word. Example is Hello!123xY, it contains a full word Hello.
- Should not contain your name, company name or other recognizable names which can be associated with you. Hence, if I create a password erVijay#$34, it is not a good password as it contains my name Vijay.
- Use a mixture of Lowercase and Uppercase alphabets.
- Use few numbers also. Avoid using numbers which can be associated with you like your birthday, anniversary etc.
- Use few special characters also.

2. Way 2 - File > Info - File > Info > Protect Workbook > Encrypt with Password gives you Encrypt Document window as in 1 e).

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3. Way 3 - Use Shortcut - You can also reach to Encrypt Document as in 2 by following shortcut -

ALT+FIPE

Note - You need not keep ALT pressed. Whether you keep ALT pressed or not, this will not make a difference.

4. Way 4 - File > Save As - File > Save As > Tools > General Options gives you access to General Options window where Password to Open can be given to encrypt. This window is different from Encrypt Document window which comes in 1 & 2. But specifying Password to Open here also has the same effect as in 1 & 2.

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Now, this particular way also offers you to specify a password which unless specified will not allow an user to modify the file. If user wishes to modify the workbook, he will have to either supply the Password to modify or save the file with a different name. But, he will not be able to remove the password to open even if he saves with a different name. Hence, the file will always stay protected.

Another Recommendation to Increase Security of Excel File - If you have super sensitive data, apart from encrypting your Excel workbook as in 1, 2 or 3, you should encrypt your file in a container program like 7 Zip, WinRAR with a different password. The person who gets the file will have to use two different passwords to open this file - One at container program level and one at Excel level. I recommend 7 Zip as it is a free open source program and is very good in encrypting. It can be downloaded from http://www.7-zip.org/

Of course, the receiver also needs to have 7Zip installed and he can download it and there is no purchasing involved here.

To encrypt with 7 Zip, you will to need select either 7z or .zip Archive format and specify format. Also you can select 256 bit AES method which is very difficult to crack and more secure than 128 bit default AES encryption of Excel. Choosing 7z Archive format has the added advantage as you can encrypt file name also.

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HOW TO REMOVE ENCRYPTION from Excel Document

It is also important to know how to remove the encryption if not needed. You can display Encrypt Document window by one of the ways given in Way 1 to 4 and make the password field blank. After making password field blank, save it again. Now, the encryption will be removed.