An MIT study found that discarded computers, even those with "erased" disk drives, contained confidential information like credit card details, financial records, medical records and personal email.

Therefore, before you donate or dispose that old PC, wipe it clean of all sensitive data. Delete your web cache, cookies, surf history, e-mail contacts and messages, personal documents, recycle bin and any non-transferable software.

Merely deleting the "My Documents" folder is ineffective as the data can be recovered using a simple "undelete" utility. Undelete programs work because deleting a file does not actually overwrite the blocks on the computer's disk that are used to hold the file's information.

Even formatting does not properly sanitize a hard disk because the Windows Format utility doesn't overwrite every block. Therefore, the best approach to erase your old computer drive is to use a disk cleaning utility that overwrites data with random data so that it becomes unrecoverable.

There are several free and commercial software that you can use to wipe the entire contents of your hard-disk - they overwrite every block of data.

Hard Disk Disk Cleaning Software
Paragon Disk Wiper | Webroot Window Washer | Eraser (free) | SDelete Command Line tool from SysInternals | Wipe for Linux | Shredit X for OS X | Boot and Nuke (delete everything) | Wipe Info feature in Norton Utilities and System Works

Source: Private data on discarded computers | Make Sure your Old Computer Tells No Tales | Donating a Computer | Ultimate Data Destruction