Personal Folder files have file extensions of .pst.  An example of a name of a Personal Folder file is "personal.pst".  By default, email is stored on the Exchange server in your Mailbox file. A Personal Folder file can can be created and saved on a local machine or your H: drive. This means you can move items to that file from your Exchange Mailbox, either manually or with Rules, thus freeing up storage space in your Exchange mailbox. An Outlook Personal Folder is a convenient alternative location for storage of mail items—especially long-term storage—rather than storing them on the email server.

How to create a Personal Folder in Outlook 2003/2007

Step 1:  In Outlook, select New from the File menu.  At the bottom of the resulting menu list, choose the option to create a new Outlook Data File.

Step 2:  When Outlook Data File is selected, a list of data file types appears.  Select Office Outlook Personal Folders File (.pst) and click OK.

Step 3:  Next, you can change the file name from "Personal Folders(1).pst" to any other file name allowable by Windows.

Step 4: VERY IMPORTANT!!! You need to be aware of where your Personal Folder is being saved. It is recommended that you do not save the file in the default "Outlook" location as this is on your hard drive of your computer. As computers are re-imaged frequently (sometimes during the summer months when some employees are not here), if you save the Personal Folder file here, it will be wiped out when the computer is re-imaged. As an alternative, you can save it to your H:\ drive or to your My Documents folder. This location is on a remote server which is backed up on a regular basis. By saving your Personal Folder in this location, if you move to another computer or if your machine is reimaged, you can reconnect Outlook to your file. If you save your Personal Folder to your local machine's hard drive, it is your responsibility to back up this file.

Step 5:  After deciding on a name for the new Personal Folder file (in this case,
"Personal Folders(1) .pst"), click the OK button to start customizing the .pst file.

Step 6:  You can give the Personal Folder file a new Name.  This is not the file name as in Step 3, but is rather a name that will appear in Outlook's Folder List.  Type a name that is descriptive of what you plan to store in the Personal Folders.

If you would like to restrict access to this file with password, type the password in the spaces provided.  Please note:  The IT Department will not be able to provide assistance recovering items if you forget the password!

In Outlook, you will see an additional option for "Encryption Setting" that you may leave configured to the default setting.

Step 7:  Click OK to proceed.  The Personal Folders listing will now appear in your Folder List in Outlook.  You may collapse or expand the folders by clicking the plus or minus sign next to the name of the Personal Folders.

Step 8. You can now store items in the Personal Folder by dragging and dropping items into the folder. You can also select one or several items, right-click and chose "move to folder" from the menu. You will be provided with a folder list. You can then navigate to the Personal Folder and click OK to file the item in that folder.