Current differential relays may maloperate during magnetic inrush and over-excitation because a significant differential current is produced. To prevent maloperation, the relays adopt some harmonic components included in the differential current. The harmonic restraints may increase the security of a relay but cause the operating time delay of a relay when an internal fault occurs. Moreover, the operating time delay is more increased if a current transformer (CT) is saturated. This paper describes a current differential relaying algorithm for power transformer protection with a compensating algorithm for the secondary current of a CT. The comparative study was conducted with and without the compensating algorithm. The performance of the proposed algorithm was investigated when the measurement CT (C400) and the protection CT (C400) are used. The proposed algorithm can compensate the distorted current of a CT and thus reduce the operating time delay of the relay significantly for an internal fault with CT saturation.