How Password Managers Work

A password manager keeps all your logins in an encrypted database called a vault. The vault is scrambled with a strong cipher (typically AES-256), and the key to unscramble it is derived from your master password. Without that password the vault is just noise — even to the company that makes the manager. This is why your master password is the one secret you must make genuinely strong and never reuse.

It is worth knowing what sits inside the encryption boundary and what does not. Usernames, passwords, notes and custom fields are encrypted item by item. Account metadata — how many items you hold, when you last synced, and in some products the site addresses themselves — has historically been stored in the clear, which is enough to tell an attacker where your accounts are even if they cannot open any of them. Current versions encrypt more of this than older ones did, and any serious manager documents exactly which fields.

Reputable managers use a zero-knowledge design: encryption and decryption happen on your device, so the provider only ever stores the encrypted blob and never sees your master password or its key. To slow down attackers who steal that blob, the key is stretched with a deliberately slow key-derivation function (PBKDF2, scrypt or Argon2) that runs the password through hundreds of thousands of iterations, turning a fast guessing attack into an impractically slow one.

The work factor is not a detail to leave at its default. Current OWASP guidance is on the order of 600,000 iterations for PBKDF2-HMAC-SHA256, or Argon2id with at least 19 MiB of memory, two passes and one degree of parallelism. Vaults created a decade ago sometimes still carry iteration counts in the low thousands, which is hundreds of times weaker against the same hardware. Most managers expose the setting and re-derive the vault when you raise it, and checking that number once is worth more than any amount of fiddling with individual passwords.

The part of a password manager that quietly prevents the most harm is the one that fills the form. A manager matches a stored entry against the page's actual domain, so a lookalike address simply gets nothing offered — it will not type a real login into a phishing page the way a person skim-reading the address bar might. The refusal is informative in itself: if the manager does not offer the credential you expect, read the address bar before copying anything by hand.

Encrypted vault backups have been stolen from hosted providers before, and the lesson from those incidents is specific. The ciphertext hands an attacker unlimited offline attempts against the key-derivation function, so from that moment everything rests on two numbers: the entropy of your master password and the iteration count in force when the vault was last encrypted. A long random passphrase with modern parameters is not realistically attackable; a short, human-chosen master password is.

If a provider you use announces this kind of incident, the response is mechanical: change the master password, raise the key-derivation settings so the vault is re-encrypted under them, and rotate the credentials that matter most — email, banking, anything with payment details stored. Metadata that was not encrypted, such as site addresses, cannot be rotated, so treat it as public from then on and expect targeted phishing that names the services you actually use.

Most managers can also store time-based one-time-password secrets. That is convenient and a genuine trade-off: it puts the second factor in the same container as the first, so the vault becomes a single point of failure again. A reasonable split is to keep TOTP for lower-stakes accounts inside the manager, and the codes for email, banking and the manager's own account on a separate device or hardware key. Passkeys, which managers increasingly sync, sidestep the question differently — the private key never leaves the authenticator in a form a phishing site could capture.

Good options include Bitwarden (open-source with a generous free tier), KeePassXC (fully offline, a file you control), Proton Pass and 1Password. Whichever you pick, protect it with a long passphrase you have memorised, turn on two-factor authentication for the account, and let the manager generate a fresh random password for every new login. Keep a backup or recovery method, because if you lose the master password there is — by design — no way to recover the vault.

Two habits matter more than the choice of product. Export an encrypted backup from time to time and keep it somewhere you control, because an account lockout, a billing failure or a discontinued service should never be able to take the vault with it. And write the master passphrase down on paper, seal it, and store it where you would store a passport — this is the one secret in your life with no reset link behind it.