If you decide to invest the college fund in mutual funds, research your options carefully using a Web site like Morningtar.com, and check the funds' performance over at least a five-year period.
Index Funds, which invest in all the stocks in a particular index, like the Standard and Poor 500, are a good option for less experienced investors. A fund that invests in the total stock market might be even better because your risk is spread out over all the stocks that are publicly traded, which reduces your risk even more.
I also strongly recommend no-load mutual funds, which don't charge a sales commission, and funds with low expenses, like the Vanguard family of funds or the Fidelity family of funds.
There's no need to pay a stockbroker a commission. You can buy directly from the mutual fund companies by visiting their Web sites. Many funds have a minimum of $1,000 but some will waive this minimum if you have money automatically deducted from your bank account each month and invested in the fund.
CDs are a safe investment but chances are your money will not grow as much as they would in a good, strong mutual fund. If interest rates are rising, choose a shorter term CD so you won't be locked in for too long as the rates go up. If interest rates are high and expected to fall, lock-in the rate for as long as possible by taking out a five year or longer CD.
Check out CD rates at Bankrate.com to find the highest rates. You may get a higher return by getting your CD at a non-local bank. As long as they are FDIC insured, your money is safe.