Free open source on-the-fly encryption software
When a computer hibernates (or enters a power-saving mode), the content of its system memory is written to a so-called hibernation file on the hard drive. You can configure TrueCrypt (Settings > Preferences > Dismount all when: Entering power saving mode) to automatically dismount all mounted TrueCrypt volumes, erase their master keys stored in RAM, and cached passwords (stored in RAM), if there are any, before a computer hibernates (or enters a power-saving mode). However, keep in mind, that if you do not use system encryption (see the chapter System Encryption), TrueCrypt still cannot reliably prevent the contents of sensitive files opened in RAM from being saved unencrypted to a hibernation file. Note that when you open a file stored on a TrueCrypt volume, for example, in a text editor, then the content of the file is stored unencrypted in RAM (and it may remain unencrypted in RAM until the computer is turned off).
Note that when Windows enters Sleep mode, it may be actually configured to enter so-called Hybrid Sleep mode, which involves hibernation. Also note that the operating system may be configured to hibernate or enter the Hybrid Sleep mode when you click or select “Shut down” (for more information, please see the documentation for your operating system).
To prevent the issues described above, encrypt the system partition/drive (for information on how to do so, see the chapter System Encryption) and make sure that the hibernation file is located on one of the partitions within the key scope of system encryption (which it typically is, by default), for example, on the partition where Windows is installed. When the computer hibernates, data will be encrypted on the fly before they are written to the hibernation file.
Note: You may also want to consider creating a hidden operating system (for more information, see the section Hidden Operating System).
Alternatively, if you cannot use system encryption, disable or prevent hibernation on your computer at least for each session during which you work with any sensitive data and during which you mount a TrueCrypt volume.
* Disclaimer: As Windows XP and Windows 2003 do not provide any API for encryption of hibernation files, TrueCrypt has to modify undocumented components of Windows XP/2003 in order to allow users to encrypt hibernation files. Therefore, TrueCrypt cannot guarantee that Windows XP/2003 hibernation files will always be encrypted. In response to our public complaint regarding the missing API, Microsoft began providing a public API for encryption of hibernation files on Windows Vista and later versions of Windows (for more information, see the Version History, section TrueCrypt 5.1a). Since version 7.0, TrueCrypt has used this API and therefore has been able to safely encrypt hibernation files under Windows Vista and later versions of Windows. Therefore, if you use Windows XP/2003 and want the hibernation file to be safely encrypted, we strongly recommend that you upgrade to Windows Vista or later and to TrueCrypt 7.0 or later.