An improved current differential protection method for the Y，d or D，y connected transformers is presented， in which a new differential current is introduced to compensate the effects of the exciting current and the remnant flux. By this method， the differential current between the primary and secondary winding is used during the period prior to saturation， and a modified differential current which takes into consideration of the calculated magnetizing current is adopted after saturation. Using EMTP simulation， the performance of the proposed method is compared with that of the conventional current differential algorithm with harmonic blocking. Test results show that the proposed method remains stable under severe magnetic inrush and over-excitation conditions while offering fast operation speed for internal fault condition. In contrast， the operation speed of the conventional harmonic blocking method can be significantly delayed by its restraining signal. The feasibility and superiority of this method is further proved by the experiment using a real transformer. The new protection algorithm is not affected by the harmonic and the level of remnant flux and does not require additional restraining or blocking signal to maintain stability.