As much as everyone would like for there to be a stock answer to the selection question, there isn't. Different situations and needs will play a large role in the decision of which file system to adopt. There isn't any argument that NTFS offers better security and reliability. Some also say that NTFS is more flexible, but that can get rather subjective depending on the situation and work habits, whereas NTFS superiority in security and reliability is seldom challenged. Listed below are some of the most common factors to consider when deciding between FAT32 and NTFS.

Security
FAT32 provides very little security. A user with access to a drive using FAT32 has access to the files on that drive.

NTFS allows the use of NTFS Permissions. It's much more difficult to implement, but folder and file access can be controlled individually, down to an an extreme degree if necessary. The down side of using NTFS Permissions is the chance for error and screwing up the system is greatly magnified.

Compatibility
NTFS volumes are not recognized by Windows 95/98/Me. This is only a concern when the system is set up for dual or multi-booting. FAT32 must be be used for any drives that must be accessed when the computer is booted from Windows 95/98 or Windows Me.

An additional note to the previous statement. Users on the network have access to shared folders no matter what disk format is being used or what version of Windows is installed.

FAT and FAT32 volumes can be converted to NTFS volumes. NTFS cannot be converted to FAT32 without reformatting.


Space Efficiency
NTFS supports disk quotas, allowing you to control the amount of disk usage on a per user basis.

NTFS supports file compression. FAT32 does not.

How a volume manages data is outside the scope of this article, but once you pass the 8GB partition size, NTFS handles space management much more efficiently than FAT32. Cluster sizes play an important part in how much disk space is wasted storing files. NTFS provides smaller cluster sizes and less disk space waste than FAT32.

In Windows XP, the maximum partition size that can be created using FAT32 is 32GB. This increases to 16TB (terabytes) using NTFS. There is a workaround for the 32GB limitation under FAT32, but it is a nuisance especially considering the size of drives currently being manufactured.


Reliability
FAT32 drives are much more susceptible to disk errors.

NTFS volumes have the ability to recover from errors more readily than similar FAT32 volumes.

Log files are created under NTFS which can be used for automatic file system repairs.

NTFS supports dynamic cluster remapping for bad sectors and prevent them from being used in the future.