Can a USB Drive Protect You From Identity Theft?

I love the idea of products like Guard Systems' ID Vault. You plug a small thumbdrive into your computer, and all your user names and passwords are stored there instead of on your PC. The idea is that a hacker, even if he has access to a computer you've used, would not be able to recover your identity from the machine, since it is stored on the thumbdrive and only on the thumbdrive, where it is protected by a PIN.

Here's how it works. You plug in the ID Vault and install the software. Then you register your banks, brokerages, and the like on the drive. You store user names and passwords on the device and give it a PIN. In order to visit one of your financial sites, you simply plug in the device and use it instead of a browser favorite to go there. Type in your PIN and the site loads. It works great. 

And that's all well and good, but I'm not convinced that that's how identity theft generally takes place. The big problem: You (or anyone) can still access your account without the ID Vault, using your normal user name and password. You see, the trick is that the banks don't require you to use the ID Vault, so you're still vulnerable to brute-force hacking or being tricked into giving out your password through any other method. You can still access your accounts the old way; you don't need the ID Vault at all. Yes, the ID Vault can give you an extra, though tiny, layer of security, but it's hardly anything earth-shattering.

The ID Vault costs $50 and it looks kind of cool, though I managed to break the nifty spring-loaded retraction mechanism within an hour of playing with it. Instead of investing in a hardware solution here that might just give you a false sense of security, I suggest simply improving the strength of your passwords and training yourself not to divulge them to anyone.