Keep in kind that right now and for the next few years, interest rates will remain so slow, that they will not even be keeping up with inflation of about 2.5%.
If the money is for anticipated education, look at a 539 plan. The gains are 100% tax free is they are use for her education.
If you just want her to have a nest egg, when she becomes an adult, also look at I-Bonds or EE-Bonds, which are the old style savings bonds offered by the US Treasury. I-Bonds are inflation linked, so if inflation picks up, they increase the interest paid, and EE-Bonds are bought at a 50% coupon, and mature to face value (i.e., you buy a $50.00 once a month for $25.00, and it matures to $50.00 over the years).
Its to me from your question, that perhaps you want to keep an eye on the money, and not have your sister involved, even though it is her daughter. That is very common, and above a couple of full proof alternatives that allow you full control, without having to file tax returns for your niece.