both methods you have described leave too much space between the vertical characters

That can be solved by adjusting the line spacing thus:

For a short word, what you have done may be quickest.

1. If you are using a text frame, reduce its width so the letters arrange themselves vertically. Make the text centre-aligned. This may not work if the text contains wide characters such as w's, unless you are using a fixed width font like Courier New.

2. When typing the characters add a line break after each one. Shift+Enter adds a line break. This works in both frame and artistic text. Again, use centre-alignment for the text.

You could, of course, use method 1 initially, the use method 2 only where necessary if two letters appear side-by-side.

There is no option for "Vertical Words", but Line Spacing can be done from both the Paragraph and the Character tabs, or in Format/Paragraph dialogue.