A simple algorithm for fast computation is an important requirement for the efficient application of microprocessors in power-system relaying. Using the rectangular transform technique, a fast and accurate algorithm has been developed for transformer protection. The algorithm generates the Fourier coefficients by addition and subtraction routines only. The method provides good discrimination between the nonzero differential current produced by the transformer energisation and that produced by internal faults. The algorithm provides fast fault detection and yields a large blocking signal, using second or higher harmonic components. The digital simulation and test results on a variety of fault and inrush conditions, including the periodic inrush ones, clearly demonstrate the efficacy of this algorithm for the protection of the power transformer. Furthermore, owing to the relative simplicity and absence of time consuming multiplication and division calculations, the algorithm is quite suitable for microprocessor-based protection of power systems.