Here's all you need to do to encrypt the drive and protect it with a password:
• Connect any external drive to the Mac
• Right-click on the external drives name in the Finder and choose "Encrypt DiskName…”
• Set and confirm a password, then set a reasonable password hint, followed by clicking the "Encrypt" button
Do not forget the password or you will lose access to the data on the drive!
• Wait while the encryption takes place
The encryption process can be very quick for smaller drives like USB keys and SD cards, but can take quite a while for large external hard drives used for backups or personal data. Be prepared to wait a bit for anything larger than a few GB in size, as the general encryption-to-GB time ratio seems to be about 1 GB per minute.
Once the drive has finished encrypting and is disconnected, a password will be required before the data can be accessed from the Mac. To maintain the password protection, be sure to uncheck saving the password to the Keychain when asked.