What Is a Password Manager and How Does It Work?

A password manager stores and encrypts your passwords in one secure vault. Here's how it works, whether it's safe, and whether you actually need one.
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A password manager is an app that remembers your passwords for you and keeps them secure, typically with AES-256 encryption, the same standard used by banks and governments. That means your information is stored safely, so even if someone tried to access it, they wouldn't be able to read it.

You can also use your password manager across all your devices, like your phone, tablet, and computer. Once you set it up, it automatically fills in your logins wherever you go, saving time, reducing stress, and helping you stay protected online.

In this article, we'll explain what a password manager is, how it works, whether it's safe to use, and whether you actually need one.

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In this guide
What is a password manager?
How does a password manager work?
What are the benefits of using a password manager?
Do I need a password manager?
What features to look for in a password manager
Types of password managers
Are password managers safe?
Bottom line
FAQs

What is a password manager?

A password manager is an app that safely stores all your login details in one secure place. Many password managers store more than just usernames and passwords. They can also keep other sensitive information, such as credit card numbers, bank details, addresses, passport info, and private notes. Everything is secured with AES-256 encryption or better, meaning your data is unreadable to anyone, including the password manager company itself.

NordPass lets you easily and securely store your credit card information for quick autofill while shopping online.

Most password managers include a random password generator to create strong, complex passwords for you. Password vaults also automatically fill in the credential fields when you sign in to websites or apps. This helps prevent weak or reused passwords and makes managing your online accounts quick and stress-free, especially since they can work across all your devices.

Security experts recommend using a password manager to reduce the risk of identity theft through hacking and phishing.

An authenticator app is another great tool that boosts your online security. Learn how they work and see our top recommended authenticator apps.

How does a password manager work?

A password manager works by encrypting your passwords and storing them in a secure vault that only you can unlock with a master password.

According to an All About Cookies digital will study, 39% of people store passwords only in their memory, with nothing written or saved anywhere. A password manager is a major upgrade that ensures you don't forget your passwords while keeping them secure.

Chart showing how Americans store passwords

When you have a password manager installed and enter a username and password on a login page, you'll typically see a prompt to save them. When you save a password, it's encrypted using AES-256 before being stored — in other words, the data is scrambled and unreadable without the key.

In the case of password managers, the key is the master password. The master password decrypts your vault locally on your device, never on the company's servers, and the company never sees or stores your master password. This is called a zero-knowledge architecture, which means the company can't access your data.

When you visit a site with a login field, the password manager decrypts the login info stored on your device and fills it in automatically. Your encrypted vault syncs to the cloud so it's accessible across all your devices.

Understanding how your password manager protects data makes it easier to evaluate whether the trade-off — trusting one app with all your passwords — is right for you.

What are the benefits of using a password manager?

According to an All About Cookies survey on password behavior, 22% of people frequently forget passwords, and another 51% sometimes do.

Pie chart showing that the majority of users forget their passwords at least sometimes.

  • Remember passwords: It's not uncommon for a person to have dozens of passwords. This can lead to problems, such as forgetting your login credentials, relying on weak passwords, or writing down sensitive login info in an insecure place. Password managers enable you to store, create, and manage your passwords safely.
  • Create and manage strong, unique passwords: Password managers generate complex passwords using a random password generator and store them securely for every account. You never need to reuse a password or rely on something easy to remember. The manager alerts you when a weak or reused password is detected and prompts you to create a strong password.
  • Protection against phishing: Password managers only autofill your credentials on the exact sites where they were saved. If you land on a fake login page, the manager will not recognize the URL and will not fill in your password, adding a layer of protection against phishing attacks.
  • Protect against credential attacks: Reusing passwords across accounts is one of the most common ways hackers gain access. This technique is called credential stuffing, in which stolen passwords from one breach are automatically tried on hundreds of other sites. Because a password manager generates and stores a unique password for every account, a single compromised password can't cascade into multiple account takeovers.

Why you might want to turn off Google Password Manager

Google Password Manager can be a helpful tool for remembering all those random passwords. But if your Google account gets hacked, cybercriminals can access all your stored passwords. Here's how to turn off Google Password Manager and why you should use a third-party password manager instead.

Do I need a password manager?

You don't necessarily need a password manager; however, most people can benefit from using one. If you have more than a handful of online accounts, reuse passwords, or tend to use weak passwords so that they're easier to remember, you're a great candidate for a password manager. Using one can help you incorporate stronger passwords while simultaneously making them easier to remember.

This is even more true if your information has been involved in a data breach, you use public Wi-Fi, or you struggle with too many login credentials. Both data breaches and public Wi-Fi pose security risks that can expose your login credentials to bad actors. A password manager reduces that risk by ensuring every account has a unique, unguessable password. Dealing with too many logins often drives people to use weaker passwords that are easier to remember, increasing the odds of their accounts being compromised.

According to an All About Cookies survey, 82% of people use at least one unsafe piece of personal information in their passwords, such as a pet's name, birthday, or reused credentials. The same survey found that 73% of users report password fatigue, and only 34% currently use a dedicated password manager. That means the vast majority of people are one data breach away from a serious security problem, and a password manager is the most practical fix.

Bar chart showing most common ways for remembering passwords.

Password manager pros and cons

Pros
  • Remembers all your passwords behind one master password
  • Generates strong, unique passwords for every account
  • Alerts you to weak, reused, or compromised passwords
  • Works across all your devices and browsers
  • Includes features like breach alerts and dark web monitoring
Cons
  • Requires setup time to import and organize existing passwords
  • Forgetting your master password can complicate account recovery
  • Free options from unknown developers may not be trustworthy

That said, password managers aren't for everyone. If you have very few accounts and already have a secure, reliable system in place to remember them, the overhead of setting up a password manager may not be worth it. However, for most people, the cost of a breach outweighs the setup effort. Security experts agree and broadly recommend using a password manager.

If you've decided a password manager is right for you, here's what to look for.

What features to look for in a password manager

If you're new to password managers, you're probably unfamiliar with the bells and whistles. All third-party password managers offer the same core features, like the ability to create, store, and manage your passwords securely. Those are a given.

But depending on the service, you may have access to more advanced security features, like dark web scanning and data breach alerts. Premium password management solutions may include proprietary security features such as Keeper BreachWatch, 1Password Watchtower, or Bitwarden Send. Here's a rundown of features to look for in a third-party password manager.

Standard features

  • Password vault: A vault offers encrypted storage for all your saved passwords and is typically accessed with a master password.
  • Password generator: Random password generators help you to quickly create complex passwords based on your character specifications, like uppercase letters, lowercase letters, numbers, and symbols.
  • Passkeys: Passwordless authentication, such as passkeys, lets you access your account with a cryptographic key pair. In simplest terms, you can use an authenticator to create a unique passkey that connects your account to a particular app or website. Most premium password managers allow you to create, store, and manage passkeys in addition to passwords.
  • Password sharing: This feature allows you to share passwords with others. You can share your entire password vault or select a one-off password. You may also be able to include access restrictions, like the shared password becoming unavailable after a specified date or time. The biggest limitation is that some password managers require the recipient to be an account holder as well.
  • Import/export passwords: Not all password managers include this feature, but the ability to import your saved passwords is essential. Otherwise, you would have to input all your login credentials manually. Import features typically allow you to import passwords from a CSV (exported from another third-party password manager or your browser's built-in password manager).
  • Autofill: Autofill and form filler enable quick access to your accounts or saved records and allow you to sync information across multiple devices, browsers, and operating systems. If you don't already have your logins saved, your password manager may conveniently prompt you to save new credentials upon sign-in.
  • 2FA or MFA: Two-factor authentication (2FA) and multi-factor authentication (MFA) further secure your password manager account by using additional verification methods such as SMS, one-time passwords (OTPs), biometric authentication, security questions, and more.
  • Encrypted storage: A big benefit of using a third-party password manager is knowing your data is safe behind strong encryption protocols. Top password managers use AES-256 encryption. NordPass is considered the cream of the crop because it goes a step further by employing XChaCha20 encryption. For context, Google and Cloudflare also use XChaCha20.
  • Cloud backup: Cloud storage or cloud backup means your data is recoverable if you lose your devices. It also allows easy accessibility since you can sync your passwords across devices.
  • Broad device and browser compatibility: While free built-in browser password managers are limited to their browser (e.g., Google password manager is limited to Chrome), third-party password managers offer compatibility across browsers and devices. You can also sync your passwords across mobile devices.

Advanced security features

  • Password health reports: Scans your saved passwords and flags any that are weak, reused, or compromised. Reports are delivered on demand or at regular intervals via email or your security dashboard.
  • Secure notes: Lets you safely store more information than just passwords, such as credit card information, bank account information, and more, from multiple devices.
  • Data breach alerts: Immediately notifies you if your passwords have been compromised in a data breach. Most premium password managers provide immediate steps you can take to secure your accounts.
  • Dark web scanning and alerts: Monitors the dark web and alerts you if your accounts have been compromised. Password managers base scans on your email address(es) or stored passwords and alert you via an email report or the security dashboard if your info surfaces in an exposed database.
  • Digital legacy (or emergency access): Lets you designate someone to receive your credentials in case of an emergency or death. According to the All About Cookies digital will study, only 30% of people in relationships say their partner could easily access their online accounts if they passed away. Additionally, 50% of married people have money in accounts their spouse doesn't even know about, with a median value of $8,000. Digital legacy features exist precisely to solve this.

Chart showing how much money people may lose

Premium security features

  • Virtual private network (VPN): Some premium password managers may include VPN access as part of your subscription, enhancing online security. For example, Dashlane includes HotSpot Shield VPN in its premium subscription tiers.
  • Email masking: The ability to cloak your real email address provides stronger security when browsing or shopping online. NordPass, 1Password, and Bitwarden offer an email masking feature.
  • Secure file storage: Some premium password managers offer additional encrypted storage for you to secure sensitive documents or files. Keeper, NordPass, 1Password, Bitwarden, and Proton Pass offer secure file storage, typically as an add-on to your password manager subscription.
  • Travel Mode: 1Password has a proprietary security feature, Travel Mode, that allows you to remove your login credentials while traveling. You can then restore access to passwords of your choosing.

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  • Built-in Watchtower flags breached, weak, and reused passwords and shows which sites support 2FA you haven't set up yet
  • Travel Mode feature lets you hide specific vaults when crossing borders, so sensitive data isn't on your device if it gets searched

Types of password managers

Password managers come in a few different forms, including:

Desktop apps

An application you could run from your computer desktop, whether you run Windows or Mac, that might only be available on one device. Because desktop apps can store passwords locally without syncing to the cloud, there's no remote attack surface, though this limits accessibility if you use multiple devices.

Mobile apps

Typically available on iOS (Apple iPhone) and Android devices to provide easy access to your information anywhere. Third-party password management apps are considered more secure than built-in apps because, with the latter, your passwords are only as secure as your phone. On the other hand, dedicated password managers offer enhanced encryption protocols and authentication methods.

Browser extensions

Password managers are typically available as extensions for web browsers such as Safari, Google Chrome, Firefox, and Microsoft Edge. A browser extension can be helpful if you frequently use web browsers and need quick access to different passwords. An advantage of using a password manager extension is that you don't have to enter passwords online manually.

Browser password manager vs. dedicated password manager 

Browser-based managers like Google Password Manager and Apple Passwords are convenient, but they have real limitations. They only work within their browser ecosystem, offer limited encryption and security features, and tie all your passwords to a single browser account. If that account is compromised, every saved password is at risk. A dedicated password manager works across all browsers and devices, uses stronger encryption protocols, and adds features like breach monitoring, secure sharing, and zero-knowledge architecture that browser managers do not offer.

Cloud-based services

Most premium password managers offer cloud-based services, which means they store passwords and other sensitive account data securely in the cloud. This service also provides easy access to your information from different devices. You could access your password manager from a phone, a web browser, or both.

Open-source

Open-source software allows free reviews, audits, and contributions to a password manager's source code, helping improve its security. Open-source password managers could be designed for desktop or mobile devices. They could also be built for browsers and could make use of distributed networks. Bitwarden and Proton Pass are popular open-source password managers.

What about single sign-on (SSO)? SSO lets you use a single login, such as your Google or Microsoft account, to access multiple services without creating separate passwords for each. It's common in workplace settings, but it isn't a password manager. A dedicated password manager and SSO can work alongside each other: SSO handles corporate access, your password manager handles everything else.

Are password managers safe?

Yes, password managers are generally safe to use, and security experts broadly recommend them. No tool is perfectly immune to attack, but the encryption and zero-knowledge architecture used by reputable password managers make them significantly more secure than reusing passwords or relying on a browser's built-in manager.

The most common concerns about password managers center on data breaches, particularly in light of LastPass's well-documented breach history. However, although hackers did access encrypted password vaults, those vaults are unreadable without the master password. This actually makes using a password manager less risky than the alternative: according to an All About Cookies survey, 59% of people have had a password appear in a data breach, and 41% of those people continued using the same exposed password anyway.

Circle chart showing that the majority of people have had a password appear in a data breach, but many of them continue using the same passwords anyway.

Ultimately, your master password is the critical point of failure, not the password manager itself — which means that using a strong, unique master password is the most important thing you can do.

Here are some additional tips to help ensure your passwords stay secure:

  • Enable multi-factor authentication on your password manager account.
  • Choose a password manager with a zero-knowledge architecture and a published independent security audit (the more recent, the better).
  • Avoid Google Password Manager. It ties the security of all your accounts to your Google account, which is a high-profile target. For a more secure setup, turn off Google Password Manager and stick with a third-party option.
  • There are some good free password managers available. Look for password managers that have undergone independent third-party security audits and have a transparent track record. Avoid free options from unknown developers.

If you're looking for a specific recommendation, our team has hands-on tested dozens of password managers. See our guide to the best password managers for side-by-side comparisons, pricing, and testing methodology.

Bottom line

The best password managers offer an effective way to safely manage multiple passwords, reducing the risk of forgetting or misplacing them. Plus, the ability to create, store, and manage complex passwords helps thwart hackers who are trying to steal your identity or access your online financial accounts. Third-party password managers offer significantly stronger security than free built-in browser options, with AES-256 encryption, zero-knowledge architecture, and advanced features like breach alerts and dark web monitoring that browser managers don't provide.

For most people, the question isn't whether to use a password manager; it's which one. The setup takes minutes, and the protection it provides against credential theft, data breaches, and password fatigue is difficult to replicate any other way.

FAQs

Do I need a password manager?

Most people benefit from using a password manager, especially if they have more than a handful of online accounts or reuse the same password across multiple sites. According to an All About Cookies passwords behavior survey, 82% of people use at least one unsafe piece of personal information in their passwords, and 73% report password fatigue from managing too many credentials. If your information has been in a data breach, you use public Wi-Fi, or you find yourself reusing passwords for convenience, a password manager is a practical, widely recommended solution.

Which password manager is the strongest?

Third-party password managers use encryption to keep your information secure. Both NordPass and Keeper are known for their advanced security due to their zero-knowledge architecture. Of the two, NordPass is arguably the most secure because it uses xChaCha20 encryption (instead of the standard AES-256 algorithm) and is from Nord Security, a top name in cybersecurity. And while most password managers rely on two-factor authentication, NordPass and Keeper offer biometric authentication, ensuring your account is secure.

Which password managers have been hacked?

Password managers, including LastPass and OneLogin, have experienced confirmed security incidents. LastPass's 2022 breaches were the most serious, with hackers accessing encrypted vaults and some unencrypted customer data. Other managers have disclosed security vulnerabilities over the years, but vulnerabilities that are patched quickly are fundamentally different from a breach that exposes customer data.

How can I remember all my passwords?

One of the easiest ways to remember all your passwords is to use a password manager. These helpful programs typically offer secure password storage and tools to generate new random passwords when needed. Other ways to remember your passwords include mnemonic strategies like visualizing your password, typing the password repeatedly to build muscle memory, and selecting a password that tells a story only you'd recognize. 

Should I save passwords on my computer?

It’s typically not the best idea to save passwords on your computer if you want to protect your information. Different web browsers often suggest automatically keeping passwords for convenience, but this could make it easy for anyone with access to your computer to access your accounts. Password managers that don’t automatically enter passwords would likely be a safer option.

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  • Flags weak and reused passwords directly in the browser extension, so you can spot problems without digging into a dashboard
  • Comes with a 60-day money-back guarantee, one of the longest return windows provided by a password manager

Author Details
Dave Schafer has written about consumer cybersecurity and technology since 2014, with a focus on the products people rely on most to stay safe online — VPNs, password managers, and cloud storage. With more than a decade of experience covering consumer tech, he cuts through product complexity to help readers choose tools that protect their data. He has authored more than 60 articles for All About Cookies and has been published in MakeUseOf, SatelliteInternet.com, and HighSpeedInternet.com.