During magnetic inrush or over-excitation, saturation of the core in a transformer draws a significant exciting current, which can cause malfunction of a current-differential relay. This paper proposes a modified-current-differential relay for transformer protection. The relay calculates the core-loss current from the induced voltage and the core-loss resistance as well as the magnetizing current from the core flux and the magnetization curve. Finally, the relay obtains the modified differential current by subtracting the core-loss and the magnetizing currents from the conventional differential current. A comparative study of the conventional differential relay with harmonic blocking is presented. The proposed relay not only discriminates magnetic inrush and over-excitation from an internal fault, but also improves the relay speed.