Earnest Money Deposit:

1. Earnest money is assurance or guarantee in the form of cash on the part of the contractor to keep open the offer for consideration and to confirm his intentions to take up the work accepted in his favour for execution as per terms and conditions in the tender.
2. In case a tender fails to commence the work awarded to him, the earnest money is forfeited to government. No interest is payable upon the earnest money to the contractors.
3. EMD of the lowest tenderer whose tender is normally accepted is retained by the department as a part of security deposit for due performance of contract.

Security Deposit:

1. The contractor is required to deposit with the owner a sum stated as a percentage of the cost of the work in order to safeguard the interests of the owner in the event of improper performance of the contract.
2. The relevant clause should specify the time limit within which the payment has to be made and the mode of payment should be specified.
3. However, in big projects the security is taken in the form of bank guarantees. The bank guarantee costs the contractor a small percentage, seldom exceeding two percent per annum of the amount guaranteed with small margin money.
4. Accepting the security in terms of the bank guarantee is thus to the advantage of the employer.