Jakob Nielsen on password masking
Usability suffers when users type in passwords and the only feedback they get is a row of bullets. Typically, masking passwords doesn’t even increase security, but it does cost you business due to login failures.
In theory, I agree—but there are plenty of instances where having a masked password makes sense. For instance, if you’re entering login information while connected to a projector or working in a busy coffee house. Nielsen proposes using a check box or toggle next to the input to give the user the option of masking their password. Interesting read on something that most designers, including myself, take for granted.