Wow that's just insane. I'm glad I haven't run across any services like that. I'm not sure what their line of thought it; it only inconveniences normal users. A person attempting to try multiple passwords can likely figure out how to get around that restriction without issue.
It's theoretically a defense against key loggers. Of course, if someone has compromised your machine to the point where they're tracking key strokes there's no reason to assume they can't also grab your mouse presses and websites.
This isn't even their worst security practice. What truly got me to leave was their security questions: they're presented as multiple choices. My randomly generated string stands out rather obviously next to the "typical" choices.
Which is pointless anyway because at the point you access the keyboard buffer you can as well install a certificate and get a proxy going
If your account is interesting enough for criminals to break into your computer room and attach dongles to your PC (I'm imagining a Mission: Impossible style break here), congratulations: you've clearly made some good financial decisions in life :-)