Keyloggers are key stroke recorders which can record all keystrokes made on your keyboard! There are two types of keyloggers, hardware & software. Hardware keyloggers can be attached to keyboard, placed below keyboard or even some keyloggers comes built in with keyboard. External keyloggers are noticeable by the user, while built in keyloggers are not. There are various types of software keyloggers also, kernel based & hook based are popular. Kernel based keyloggers resides at kernel level, which gains unauthorized access to hardware (keyboard). Kernel based keyloggers can be in the form of keyboard drivers, so be careful while installing drivers from unknown sources. Hook based keyloggers, hook to keyboard using functions provided by OS & records keystrokes.
So, let it be your banking password or email account password, it can be easily recorded. Secured encrypted connection wont avoid keylogging, it secures your password after entering & secures until it travels to server. Software keyloggers can also be programmed to send recorded keystrokes to a pre-defined email ID, to upload keystrokes to FTP server or even to access & monitor log on your local machine via internet.
How to prevent from keyloggers:
Web Keyboard: Many banks provide you with online keyboard, make use of this while logging into your banking account.
Firewall: Use a firewall which alerts you when any application tries to connect to internet. Few firewalls are available for free, Comodo is one of those.
Anti Spyware: Many anti spyware softwares can detect keyloggers & cleans your PC.
Auto form fillers: Using form fillers on your browsers will avoid keylogging & also saves your time. There’s an extension called “iMacro” for Firefox, which helps you record any event you make on Firefox & playback whenever required. Get this Firefox addon at https://addons.mozilla.org/en-US/firefox/addon/3863