To avoid the mal-operation of transformer differential protection when out-zone fault occurs under current transformer (CT) saturation, a new algorithm based on frequency distribution is proposed. A new current waveform is obtained by a symmetric transformation of initial part of differential current after fault occurred, and then its characteristic is extracted by frequency distribution histogram. In the case of CT’s serious saturation, medium saturation, mild saturation, the out-zone fault and the inner-zone fault can be clearly detected by the proposed algorithm. This algorithm only needs detecting the time of fault occurring, while the time of differential current increasing is no more needed, the proposed algorithm is very fast and reliable. Simulation show satisfactory results and validate its flexibility and reliability.